Key Points
- Bitcoin and Ethereum experience a decrease in volatility, indicating a period of price stagnation.
- A bearish sentiment prevails in the market, possibly due to anticipated delays in the approval of a spot Ethereum ETF.
After witnessing substantial price fluctuations in recent weeks, both Bitcoin [BTC] and Ethereum [ETH] have entered a phase of price stagnation.
This week, Bitcoin trading has notably calmed, with a significant drop in volatility due to a decrease in trading volumes from 70% to 50%.
Market Consolidation and Bearish Sentiment
During market consolidation, many traders tend to amass long positions. However, the current trend sees a majority of traders adopting a bearish stance towards BTC and ETH.
This could be attributed to the market’s anticipation of further delays in the U.S Securities and Exchange Commission’s (SEC) approval of a spot Ethereum ETF.
This anticipation is reflected in the ETH risk reversals’ deepening negative skew, currently at -13% in the front-month contract. A negative skew implies that put options are more costly than call options for the same strike price and expiry.
In this scenario, a -13% negative skew in front-month contracts suggests a stronger preference for puts, indicating that investors are more concerned about potential price drops than they are about potential price increases.
Potential Positive Outlook
Despite the prevailing bearish sentiment, there could be a potential positive development next week. The introduction of Hong Kong-based spot ETFs for both BTC and ETH might serve as a conduit for institutional capital inflows from Asia.
This could potentially shift the balance in favor of BTC and ETH, reducing the bearish sentiment surrounding these cryptocurrencies.
Over the past few weeks, the price movements of BTC and ETH have been closely correlated. Both cryptocurrencies have undergone some corrections recently, contributing to the bearish sentiment.
Moreover, the trading velocity of both these cryptocurrencies has also decreased recently.
Finally, the MVRV ratio for both BTC and ETH has increased, suggesting that the profitability of most addresses holding these coins is relatively high. Furthermore, the Long/Short difference for these coins has also surged, indicating an increase in the number of long-term BTC holders.
