Low liquidity ahead of Q3 2022
Bitcoin and ETH could lose more in the next quarter of the year.
The two biggest cryptocurrencies closed Q2, 2022 with negative returns amid waning market interest and a worsening macroeconomic environment. Bitcoin lost more than 56% of its value, while ETH lost more than 67%. The US Federal Reserve pledged to raise interest rates and tighten measures to curb inflation this year. This regulation has hit risky assets like cryptocurrencies heavily. Moreover, many economists have warned that a global recession may be on the way, sparking fears among investors.
While Bitcoin and ETH downtrends were strong in Q2, trading history shows that both could accelerate losses in the next 3 months. During the crypto bear markets of 2011, 2014, and 2018, Bitcoin fell 68%, 40%, and 2.8% in the third quarter respectively.
The recent drop in trading volume and open interest (OI) on derivatives exchanges also may be signs of more plunges ahead. Futures trading volume on top exchanges peaked at $481.7 billion in May 2021. Since then, volume recorded a series of lower highs. The most recent spike occurred on June 14 when about $270.7 billion worth of derivatives were traded in a day. Today, trading volume is hovering at $57.2 billion, indicating less liquidity and interest in Bitcoin and the broader crypto market.
Likewise, Bitcoin’s open interest is trending downward, showing that traders are closing their futures positions. This metric represents the number of long and short BTC positions open on derivatives exchanges. If OI continues to dip lower, that could signal money is flowing out of the market, potentially leading to a steep correction.
Bitcoin and ETH continue to stagnate
While several data point to a possible drop in Bitcoin and ETH prices, both cryptocurrencies present ambiguity from the technical perspective.
BTC appears to be consolidating in a symmetrical triangle on the 4-hour chart. As it approaches the top of the pattern, the probability of significant price movement increases. The height of the Y-axis in the triangle shows that the top cryptocurrency is bound with a 24.6% move that breached the $20,900 resistance or $18.660 support level.
ETH also looks to be consolidating within an ascending triangle on the 4-hour chart. The technical pattern shows that a sustained close below $1,020 can lead to a drop of $750. However, based on the chart, if ETH can break through the $1,290 resistance level, it can rally to $1,700.
Given the vague outlook that Bitcoin and ETH currently have, how the next quarter might play out remains unclear. While the odds appear to favor the bears, the highly volatile crypto market could trigger a short bullish breakout ahead of a lower low.
(Reference: cryptobriefing)
Disclaimer: This article is for reference purposes only, not investment advice.
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