September Trading Report: Bitcoin’s Bull Market Still Intact?
Key Takeaways:
Crypto markets took a significant hit as Bitcoin and Ethereum registered their first down month since June.
Despite the weakness in the broader market, traders had opportunities to generate decent gains.
In particular, UNI gained more than 1000% on its first day on Binance's spot market, creating a positive spillover effect on UNI’s futures contracts.
In September, Binance Futures processed more than $176 billion in volume amid a flat trading period for the most part of the month.
As Bitcoin’s volatility fell to a new one-month low, altcoin contracts have driven most of the open interest growth.
The US Dollar has been a key driver of Bitcoin’s success this year. A continuation of the Dollar’s relentless selling will trigger the next wave of buying in alternative assets such as Bitcoin.
Crypto assets take a breather after a two-month rally
Following a parabolic surge in preceding months, crypto markets took a significant hit as Bitcoin and Ethereum recorded their first down month since June. In September, Bitcoin closed 7.5% lower while Ethereum declined by 17%.
The pullback across crypto markets coincided with retracements in global equity markets and Gold. In the same period, the US dollar recovered from its prolonged decline as concerns rose about slowing economic growth, increasing infections of Covid-19 in Europe, confusion about US stimulus, and upcoming elections. With so much uncertainty surrounding the global economy and a resurging pandemic, investors have turned their attention towards the greenback.
The correction in traditional markets appears to have influenced Bitcoin’s decline, which saw prices fall to a low of $9,800 - 18 percent below its peak.
As a result, Bitcoin’s futures curve flattened aggressively as traders rushed to exit and hedge positions. On Binance, BTC futures annualized rolling three-months basis plunged from 12% to -0.1% in a matter of days. The sharp fall in basis indicates that trading activity in this period is likely being done for hedging and risk management purposes, rather than for speculation.
Source: Skew.com
Decentralized Finance (DeFi), which has been one of the fastest-growing sectors this year, was not spared. Many tokens tied to DeFi platforms corrected sharply, most notably, SushiSwap (SUSHI), which lost more than 70 percent of its value. Overall, DeFi tokens were the hardest hit as panic selling ensued.
Another popular DeFi-related protocol, ChainLink (LINK), lost more than 30% in September. Other DeFi tokens exhibited double-digit losses include LEND, MKR, and COMP, which ended the month lower by 27%, 16%, and 45%, respectively.
Source: DeFi Pulse
Prior to the sell-off, the Total Value Locked (TVL) in DeFi protocols had surpassed the $9 billion mark on September 2, primarily driven by increased liquidity from centralized exchanges and irrational exuberance surrounding Sushiswap. As the entire cryptocurrency market goes into retreat, TVL in DeFi smart contracts fell from $9.7 billion to $7.7 billion, wiping off more than $2 billion in assets in less than a week. At press time, investors’ confidence in the sector has recovered as total assets marked a new high with over $11 billion.
It is a reminder that crowded trades carry increased volatility. When fear grows, weak-hands tend to sell at the first sign of danger. Such dynamics occur more often than not, especially in crypto markets. While the weak-hands may feel disappointed about their dramatic reversal of fortunes, the pullback offers a buying opportunity for long-term investors.
Opportunities amid short-term correction
Despite the weakness in the broader market, traders had opportunities to generate decent gains during this period. The positive momentum and sentiment around popular projects such as Uniswap's UNI token presented traders with opportunities to profit. In particular, UNI gained more than 1000% on its first day on Binance's spot market.
Binance Futures continued its efforts to widen its product range, providing greater variety and diversification to users. Despite the weak market, we were one of the first exchanges to list Uniswap’s UNI tokens on both spot and futures markets. This proactive approach has yielded results as Binance Futures is currently the leading futures exchange for popular tokens such as UNI, LINK, DOT, and many more.
Table 1: Market-leading position in popular tokens
As a result of our proactive approach, Binance Futures has achieved substantial market share and is currently the industry's leading derivatives exchange. Our ability to continuously provide an extensive range of products, regardless of market conditions, has led to our increasing market share. This means that even when volatility on major cryptocurrencies declines, traders can still look for trading opportunities in other areas.
Binance's market share rose to 31.2% from 29.5% in August, a significant achievement given today's low volatility environment.
Trading activity remain up-beat despite low volatility
In September, Binance Futures processed more than $176 billion in volume amid a flat trading period for the most part of the month.
Following the sell-off in early September, accompanied by a brief volume spike, prices consolidated and volumes trended downwards towards the month-end. The average daily volume on Binance Futures stood above $5.7 billion over the month.
Open interest in Binance displayed a similar trend. The initial sell-off triggered a wave of liquidations that led open interest to fall from $1.1 billion to $650 million.
Since then, open interest in Binance has gradually recovered. At the time of writing, Binance sits on the number spot by open interest with over $960 million, a marginal decline from the previous month.
Altcoin’s open interest dominance
Below, we examine the breakdown of open interest in Binance to study traders’ sentiment. Interestingly, Bitcoin’s open interest gradually declined from 53% to 42% throughout September. This observation supports the volume data shown earlier. In the previous chart, we observed a gradual decline in volume following the sharp sell-off. This period also saw Bitcoin’s volatility fall to a new one-month low. As such, Altcoin contracts have driven most of the open interest growth, which may suggest that traders are bargain-hunting for undervalued Altcoins.
Many investors appear to be undeterred by the recent market downturn as on-chain indicators signal a positive trend in the midterm. As they say, no bull market goes up in a straight line. While it can be nerve-wracking, market corrections do occur regularly during bull markets. Market corrections can be healthy, adjusting overvalued prices, and providing buying opportunities.
For instance, during the bull market of 2017, we've seen many price drawdowns of more than 30% in Bitcoin. These drawdowns provided buying opportunities as the bullish trend progressed and ultimately pushed bitcoin to an all-time high of $20,000.
Additionally, in the DeFi space, Total Value Locked (TVL) in the sector has recovered and grown since the sharp sell-off in early September. At press time, Uniswap accounts for the most value locked in protocols at $2.11 billion, while Maker is second with $1.93 billion. In third place, Aave accounts for $1.52 billion, and Curve Finance has over $1.22 billion worth of assets locked.
Backed by these fundamentals, many analysts remain optimistic about crypto assets in the medium to long term. Investors will keep a close eye on macroeconomic trends for indications of Bitcoin’s future direction. The US Dollar has been a key driver of Bitcoin’s success this year. Although, the recent upswing in the Dollar has driven crypto assets lower. Any indications of weakness or a continuation of the Dollar’s relentless selling will trigger the next wave of buying in alternative assets such as Bitcoin.