Market Wrap: Bitcoin Traders Take Some Profits Ahead of Fed Meeting, Expect Higher Volatility

Bitcoin (BTC) is roughly flat over the past week, although option traders have hedged against further price drops. And long-term bitcoin holders are taking profits.Read MoreFeedzy

Cryptocurrencies were mixed on Tuesday, indicating uncertainty among traders ahead of the U.S. Federal Reserve’s interest rate decision tomorrow.

The Fed is expected to hike rates by 50 basis points (0.5 percentage point), which would be the first half point rise in 22 years. And over the next few meetings, the Fed could raise rates expeditiously to slow the pace of inflation.

Many central banks outside of the U.S., particularly in emerging markets, have already started to raise interest rates. Meanwhile, the combination of slower economic growth and tighter monetary policy has weighed on speculative assets including stocks and cryptos.

The Fed meeting could be a source of rising volatility, according to some analysts. For example, FundStrat, a global advisory firm noticed a rise in ether’s (ETH) put/call ratio since the beginning of the year, which means option traders have started to hedge against further price declines.

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Bitcoin (BTC) has been roughly flat over the past week, struggling below $40,000, which is the midpoint of a three-month price range. Technical indicators show a decline in upside momentum over the past month, which could increase the risk of a price breakdown. That means upside could be limited going forward.

For now, analysts expect higher volatility in cryptos, tracking moves in equity markets.

“Bitcoin has seen relative strength neutralize versus ether, perhaps reflecting indecisiveness among investors who are confused as to whether the risk-off in equities will be a bigger drag on cryptos,” Katie Stockton, managing partner at Fairlead Strategies, a technical research firm, wrote in a research note.

?Bitcoin (BTC): $37,711, -1.98%

?Ether (ETH): $2,772, -2.28%

?S&P 500 daily close: $4,175, +0.48%

?Gold: $1,866, per troy ounce, +0.23%

?Ten-year Treasury yield daily close: 2.96%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Long-term bitcoin holders are starting to take some profits, which has been a source of selling pressure over the past few months.

The chart below shows the recent decline in the cost basis of long-term holders overlaid with the average selling price (currently around $38,000, indicating zero profit).

So far, profit taking among long-term holders is occurring at the most significant rate in bitcoin’s history, according to Glassnode data. “This indicates that long-term holders from the 2021-2022 cycle are capitulating, spending and redistributing their coins, specifically during the last three months,” the firm wrote in a blog post.

For short-term holders, realized losses are much worse. “The on-chain cost basis of short-term holders is at $46,910, putting the average coin held by this cohort at an unrealized loss of -17.9%,” Glassnode wrote.

Currently, about 70% of all BTC holders are in profit (30% held at a loss). In previous crypto bear markets, between 45%-57% of the market was in profit, according to Glassnode’s data, which suggests more time before a price low is reached.

Long-term bitcoin holder spending (Glassnode)

Some traders are betting on higher short-term volatility because of the uncertainty over BTC’s price direction and lingering macroeconomic risk.

“It is likely that front-end implied volatility will rally into Fed decision, but this could be an opportunity to sell volatility as we expect the mean-reversion to happen very quickly into the end of the week,” QCP Capital, a Singapore-based crypto trading firm, wrote in a Telegram announcement on Tuesday.

Bitcoin implied volatilities (Glassnode)

Algorand scores FIFA partnership, ALGO price surges: FIFA, soccer’s global governing body, locked in Algorand as an official blockchain partner before the World Cup competition that starts in November in Qatar. According to the agreement, Algorand will be a “regional supporter” for North America and Europe at the World Cup and an official sponsor of the Women’s World Cup in Australia and New Zealand next year. Algorand’s ALGO token was up by as much as 15% over the past 24 hours. Read more here.

Reasons behind Solana’s shutdown: Bots tied to a new non-fungible token (NFT) project built on Solana caused a seven-hour network outrage on Saturday, project developers confirmed in a post on Tuesday. No new blocks were produced by the network during that time. Solana processes an average of 2,700 transactions per second (tps), blockchain explorers show, with an upper peak of over 710,000 tps on a standard network, as per developer documents, according to CoinDesk’s Shaurya Malwa. Read more here.

‘Smart Money’ wallets are unloading APE, filling up on aSTETH: Prolific and active cryptocurrency traders have been unloading Yuga Labs’ ApeCoin and filling up on Aave’s aSTETH, according to data from blockchain analytics firm Nansen. Over the last 24 hours, $1.28 million worth of APE has flowed out of wallets that Nansen has categorized as belonging to “smart money,” more than any other token tracked by the firm, according to CoinDesk’s Sage D. Yang. Read more here.

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

Biggest Losers

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

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