Riding the Rollercoaster with Bitcoin and Ethereum as the Crypto Market Navigates Volatile Waters

From the outside looking in, it is quite clear that the crypto market has experienced considerable volatility in recent weeks, with distinct divergences in the behavior of its two leading assets, Bitcoin and Ethereum, being witnessed during the same time frame.

As can be seen from the chart below, both BTC and ETH have experienced major price swings since the start of the year, with both assets seeing red over the past 30-day stretch (i.e. 9% and 13%, respectively).  










Ethereum and Bitcoin’s price volatility over the last 3-month stretch (source: Coingecko)


And, while Bitcoin has given some indications of stepping into a phase of relative stability, the same cannot be said for Ethereum, an asset that has been painting a contrasting picture of uncertainty, particularly within its associated options market. 

To elaborate, the divergence has been especially highlighted by the sustained high levels of implied volatility associated with Ethereum options, signaling a cautious outlook among investors regarding its future price movements. To better unpack these bearish prospects, Ryan Lee, chief analyst at cryptocurrency exchange Bitget, recently highlighted:

“From the perspective of the options market, the implied volatility of BTC and ETH has dropped significantly in the past month, especially for options expiring within one month, indicating that traders do not expect a significant increase in volatility in the market. It is likely that BTC will fluctuate in a wide range between $58,000 and $72,000 in the next 1-2 months.”

Taking a look at BTC ETFs, Lee elaborated that there has been continuous outflow over the past two weeks, indicating short-term profit-taking. That said, he did note that the Grayscale Bitcoin ETF (GBTC) recently saw its first net inflow, so from the perspective of BTC ETF fund flows, the short-term selling pressure on the market may have temporarily eased. “There is clear support for BTC at the lower levels,” Lee opined.

When can we expect the next bull market?

Over the past month alone, the total capitalization of the crypto market has dipped from $2.75 trillion to $2.29 trillion, signaling a drop of more than 16%. Providing more context on this downturn, Lee believes the slippage can be in part attributed to the decline in the Federal Reserve’s Net Liquidity Index, which allows analysts to forecast market trends and identify short-selling opportunities.

US Fed Net Liquidity Index chart

US Fed Net Liquidity Index since Q4 2023 (source: Gurufocus)


Moreover, he believes that the receding growth of the stablecoin sector could also be playing a major role in the correction. However, judging from the results of the Fed’s recently concluded interest rate meeting,  it will be intriguing to see how Chairman Powell addresses the declining trend in inflation, the rise in the unemployment rate to 4.5%, and other lingering liquidity risks — particularly because these factors stand to play a crucial role in determining the possibility of another rate cut this year. On the subject, Lee added:

“This indicates that the Fed is considering a rate cut path, while the market believes that there will only be one rate cut this year, indicating a deviation. It is expected that there is room for the crypto market to anticipate an earlier and larger interest rate cut. We expect the next peak of the bull market to be around September.”

Additionally, Lee anticipates notable financial gains for several key crypto sectors over the coming year or so. For the Bitcoin ecosystem, he expects the growth to be driven by new asset protocols such as Runes, ARC20, as well as the various BTC layer-2 (L2) innovations (such as Stacks, RSK, Omni, etc) permeating this space.

Similarly, when it comes to memecoins — hailed as the most profitable crypto sector of Q1 2024 —  Lee believes the continuing wealth effect is likely to keep retail investors’ enthusiasm high, fueling more trading activities. Lastly, he believes that AI tokens will also “remain hot,” with their ability to capture value in the secondary market continuing to “influence the valuation of primary market financing.”

Looking ahead

As the digital asset market continues to mature and be faced with a slew of unpredictable macroeconomic factors, it will be interesting to see how things shape out for this yet-evolving sector. And with the Federal Reserve planning to implement a few new rule changes over the next couple of months, it will be interesting to see how crypto reacts and adapts to these developments. Interesting times ahead!


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