Cryptocurrency analytics company Glassnode reported that the fading expectations of interest rate cuts in the US bond market and the pricing in of a potential rate hike have suppressed risk appetite in the cryptocurrency market.
Glassnode’s assessment stated that the Fed’s interest rate decision is critically important for the direction of the market. According to the analysis company, the yield on US Treasury bonds has surpassed the return that can be obtained from “carry trade” transactions in the cryptocurrency market.
This situation has led investors to hold new capital in cash and low-risk interest-bearing instruments rather than crypto assets. The continued strength of the dollar is also contributing to the weakening of marginal demand for the cryptocurrency market.
Glassnode noted that the Bitcoin price is trading below the most intense cost base region on the chart. The company identified the approximately $69,000 level as a break-even cost zone and significant resistance for short-term investors.
It was stated that for a stronger recovery in Bitcoin, the $69,000 short-term investor cost floor needs to be surpassed again with increasing trading volume. Furthermore, it was added that renewed strong buying in spot Bitcoin ETFs would also be important for the recovery.
According to Glassnode, Bitcoin’s current downturn represents the shallowest bear market to date in terms of the depth of price loss. However, the current downturn doesn’t appear to be over yet when compared to previous market cycles in terms of time.
The report stated that inflows and outflows of funds on cryptocurrency exchanges, spot trading volumes, and ETF demand all slowed down significantly at the same time.
Spot market trading volumes have fallen to multi-year lows, and sell orders have also thinned. However, a significant portion of investors are holding buy orders at prices well below the current price.
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Glassnode’s market risk indicator, Vector, has reportedly given a “Risk Off” signal. This indicates that investors prefer to protect their capital rather than move into risky assets.
The company also reported that investors reduced their protective positions at the peak of the rally, but returned to hedging within a week following price weakening.
Glassnode stated that the current structure of the market is determined more by macroeconomic factors such as monetary policy, bond yields, and the trajectory of the dollar than by developments in the crypto sector.
According to the analysis, Bitcoin losing its strong cost floor region between $62,000 and $68,000, coupled with a renewed acceleration of inflows to cryptocurrency exchanges during the same period, could invalidate the current recovery scenario.
Conversely, a more supportive stance in monetary policy, increased trading volumes, Bitcoin’s recovery to the $69,000 level, and a return to spot ETF buying can be considered the first signs of recovery in the cryptocurrency market.
*This is not investment advice.
