Many people are skeptical about the role of hedging assets of Bitcoin in the second quarter of 2022 after a sharp decline in prices paralleling global financial markets. ETH even worse performance Bitcoin with exhausted liquidity on all major exchanges.
Low liquidity first shelf third quarter of 2022
Two types cryptocurrency The leading market closed the second quarter of 2022 on a negative profit amid waning market interest and a worsening macroeconomic environment. Bitcoin lost more than 56% in value compared to the previous quarter, while ETH reduce more than 67%. The US Federal Reserve pledged to raise interest rates and tighten measures to curb inflation this year. This has hit risky assets like cryptocurrency. Moreover, many economists have warned that a global recession may be on the way, raising concerns in the minds of investors.
Although the downtrend of Bitcoin and ETH very strong in Q2, but trading history suggests both could accelerate losses in the next 3 months. During the crypto bear markets of 2011, 2014, and 2018, Bitcoin fell by 68%, 40%, and 2.8% in Q3 of the year, respectively.
The recent drop in trading volume and open interest (OI) on derivatives exchanges also suggests that the market may face more difficulties 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 derivatives worth about $270.7 billion traded in a single day. Today, the trading volume is knife at $57.2 billion, indicating less liquidity and interest in Bitcoin and the broader crypto market.
Volume of futures contract | The source: Coinglass
Likewise, Bitcoin Open Interest is trending down, showing that traders are closing positions futures contract their. This metric represents the number of Long and Short positions BTC are open on derivatives exchanges. If open interest continues to drop lower, that signals money is flowing out of the market, potentially leading to a steep correction.
Bitcoin Open Interest | Source: CryptoQuant
Bitcoin & ETH continues to stagnate
While several data points point to a possible drop in Bitcoin and ETH prices, both cryptocurrencies present ambiguity from a 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 leading cryptocurrency is bound with a move of 24.6% breaching the $20,900 resistance or $18.660 support.
The source: TradingView
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 could lead to a drop to $750. However, based on the chart, if ETH can break through the $1,290 resistance, it can rally to $1,700.
The source: TradingView
Given the vague outlook that Bitcoin and ETH currently have, how the next quarter might play out remains unclear. While the odds appear to be in favor of the bears, the highly volatile crypto market could trigger a short bullish breakout before a lower low.