Author: Kaiko Translation: Block unicorn
Last week, the US Federal Reserve System (Fed) kicked off its easing cycle with an unexpectedly large 50 basis point rate cut. The Fed also hinted at two more rate cuts this year. The move rekindled hopes for a soft landing for the US economy, i.e., slower economic growth without triggering a recession. In response, both US stocks and Bitcoin recorded significant gains following the Federal Open Market Committee (FOMC) meeting, with Bitcoin prices rising 5.2% in the 24 hours following the announcement.
Bitcoin’s CVD (cumulative volume difference) — a measure of net buying and selling pressure in the spot market — spiked immediately after the Fed’s press release at 18:00 UTC on September 18. Buying pressure on offshore exchanges increased further as Asian markets opened around 23:00 UTC.
Derivatives markets saw modest capital inflows, with open interest in Bitcoin rising by about 12% to $12 billion between September 16 and 19 on platforms such as Bybit, OKX, and Binance.
The U.S. central bank is not the first major central bank to cut interest rates this year. The European Central Bank (ECB) and the Bank of England (BoE) cut interest rates earlier this summer. However, the market impact of these rate cuts was relatively mild, and the price of Bitcoin actually fell in the days after the ECB and BoE announced the rate cuts.
So why did the market react so strongly to the Fed's decision?
Lower U.S. interest rates typically lead to a weaker dollar. Since the U.S. dollar is the primary quote asset for Bitcoin (BTC), a weaker dollar typically pushes up the price of Bitcoin in dollar terms. The share of USD and USD-backed stablecoins in all fiat and stablecoin trading volume has been steadily increasing over the past few years, reaching an all-time high of 93% last month.
In addition, the Federal Reserve’s loose monetary policy will also increase dollar liquidity in global markets, prompting investors to look for higher-yielding alternative assets such as Bitcoin.
It is worth noting that the historical negative correlation between the US dollar and Bitcoin has weakened over the past month, with both Bitcoin and the US Dollar Index (DXY) falling in August, suggesting that other factors are also influencing the price action of both assets. One of these factors is the upcoming US election, with former President Donald Trump currently considered a favorable candidate for both the dollar and Bitcoin.
Data highlights:
Wallets associated with Alameda Research are in the process of integrating the assets.
Crypto wallets rumored to be associated with FTX's affiliate Alameda Research have been actively moving funds over the past month, sparking speculation that the FTX bankruptcy estate may be consolidating assets in preparation for repaying creditors. Earlier this year, FTX announced that it had recovered enough tokens to be able to repay most creditors in full based on the value of its assets at the time of the bankruptcy filing. The exchange is expected to begin repayments after the final approval of its liquidation plan in early October.
Using Kaiko’s crypto wallet data solution, we investigated the movement of funds from a wallet at address 0xf02e86d9e0efd57ad034faf52201b79917fe0713, which has transferred $1.6 million worth of ETH to crypto custodian BitGo and $220,000 worth of World Coin (WLD) to Binance over the past month.
The transfer of assets to exchanges is generally seen as a bearish signal, as traders usually move assets to exchanges in order to sell. Alameda Research is an early investor in Worldcoin and holds 75 million WLD tokens (worth $118 million). These tokens have been gradually unlocked by Worldcoin developer Tools for Humanity (TFH) since July.
A deeper analysis of the inflows into this wallet shows that it consolidates assets through multiple small wallets, which are likely owned by Alameda Research, with the largest inflow being $1.27 million in USDT from OKX.
As of September 18, Alameda’s wallet still holds $64 million worth of WLD tokens. A sell-off of these tokens could have a significant impact on the price, especially since the price has fallen 30% since the token unlock on July 24. Other major holdings include several small and illiquid tokens such as FTX’s FTT ($13 million) and Bona Network’s BOBA ($9 million) tokens, both of which have a market depth of only $700,000 per day.
Traders turn to Crypto.com as markets roil in the U.S. The U.S. cryptocurrency exchange landscape has changed this year due to regulatory changes and developments in market structure. Cboe Digital shut down its digital asset spot trading business in June to focus on derivatives, although it had announced the plan back in April.
Crypto.com has seen significant growth in volume and market share since June, suggesting it may have benefited from the closure of Cboe Digital. Volumes have surged, and so has liquidity. During the summer, the exchange’s 1% Bitcoin market depth rose sharply, surpassing Gemini and challenging Coinbase’s liquidity. Coinbase even lost market share in the third quarter.
In addition, Crypto.com’s competitive fee structure may also have boosted trading activity on the platform. The exchange currently waives market maker fees for VIP-level customers and has launched other promotions. In addition, Crypto.com’s fees are generally competitive compared to other US exchanges.
The simultaneous increase in liquidity and trading volume suggests that market makers have also become more active on Crypto.com. The exchange’s growth in average trade size is another sign that it may have gained more volume from the Cboe closure.
If we look at weekday trading for BTC, ETH, and USDT, volumes have been rising steadily since March, with a noticeable spike during the summer. Since Cboe is an institutional-oriented trading platform, its average trade size is much higher than most retail platforms. The rise in trade size on Crypto.com indicates increased institutional activity.
Why is the liquidity of Altcoin becoming increasingly concentrated?
Despite the volatility of the past few months, 1% market depth for Altcoin remained relatively stable in Q3 at $270 million, indicating that market makers are continuing to provide liquidity despite the ongoing volatility.
Altcoin liquidity was significantly impacted by the FTX and Terra crashes, with liquidity falling by more than 60% between April and December 2022. However, liquidity has gradually improved over the past year, exceeding the average level before the FTX crash in the first quarter of 2024, but fell back in the third quarter.
However, the recovery of this trend has been uneven by asset class, with liquidity becoming increasingly concentrated in Altcoin, with large-cap coins outperforming smaller assets.
As of early September, the top ten Altcoin by market cap accounted for 60% of total market depth, compared to around 50% at the beginning of 2022. In contrast, the market share of the top 20 Altcoin has dropped significantly over the same period, from 27% to 14%.
In addition, Altcoin liquidity is increasingly concentrated on offshore exchanges. The share of these exchanges in total Altcoin depth has risen from 55% at the beginning of 2022 to 69%, a trend driven mainly by large and medium-sized market capitalization Altcoin.
We observe an opposite trend in Bitcoin liquidity, with U.S. exchanges increasing their share relative to offshore markets. This suggests that some market makers may have reduced portfolio risk or rotated into Bitcoin.
Exchange listings cool down in 2024
Increased global regulatory scrutiny has significantly changed the listing strategies of cryptocurrency exchanges, resulting in a significant slowdown in the number of new listings compared to the 2021 bull market.
However, focusing only on the notional volume of new listings does not fully reflect how exchanges are expanding their product lines. To provide a clearer perspective, we compared the ratio of new listings to the total number of active trading pairs on each exchange.
Binance added more than 300 trading pairs in 2024, ranking second only to MEXC. However, these new trading pairs only account for 27% of its total products, lagging behind Bybit, Poloniex and OKX in terms of listing expansion.
US-based exchanges are more conservative, with newly listed trading pairs accounting for only 4% to 15% of their existing products. For example, Coinbase launched only 29 new trading pairs in 2024, a tenfold drop compared to 2021.
Overall, newly listed trading pairs on major exchanges this year account for only about 20% of existing trading pairs, a sharp drop from the 50% average level during the peak of 2021.
US presidential election sparks crypto market volatility
Digital assets have become an increasingly prominent issue among the two major U.S. presidential candidates. Former President Trump pledged his support for Bitcoin and related areas several months ago and plans to launch his own cryptocurrency project in the coming weeks. Many market participants believe that the Republican candidate's support for Bitcoin is positive.
However, this can also be a double-edged sword, as shown by the recent debate. During the debate, Bitcoin prices fell and the market reacted poorly to Trump's performance with Harris.
Ahead of the debate, implied volatility on Deribit’s November 8th Bitcoin options contracts, which expire just three days after the U.S. vote, surged. During the debate, trading volume on special election contracts surged to over $40 million, with traders primarily buying put options, which profit when Bitcoin prices fall.
The U.S. election will likely continue to be a source of heightened market volatility in the coming weeks as we enter the final stages of the election cycle. While Bitcoin and digital assets have not been a focus in the 2020 campaign, they are growing in importance this time around. Former President Donald Trump took an early stance, pledging his support for digital assets in the U.S. and speaking at a Bitcoin conference in August. While Kamala Harris has been less vocal in her support for digital assets, the current vice president said at a fundraiser on Sunday that she would support innovation in digital assets.
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