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Bitcoin liquidity dries up but positive signals on the horizon
Liquidity in the cryptocurrency ecosystem has dried up recently, as the world’s largest market makers continue to pull back from trading and providing liquidity – mainly due to increased margin requirements and reduced maximum leverage.
The collapse of Silvergate Bank and Signature Bank earlier this year, which operated SigNet and SEN, critical players of the global crypto settlement infrastructure, also had a significant impact on the digital asset market.
On top of the limited liquidity, realized volatility in the overall cryptocurrency market has been muted, sitting at roughly 34%, and the Bitcoin Volatility Index (BVIN) massively declined from the peak of 100 a month ago to just 59 last week.
Market depth for Bitcoin is down 50% since the start of the year while trading volumes diminished – reaching levels similar to the summer of 2020.
The graph below shows that the 7-day-moving average for exchange volumes is at the lowest level since the beginning of the year, at $10 billion, down from the peak in April of over $46 billion.
In addition, Bitcoin Dominance is sitting at 48% – a high level suggesting that nearly half of the crypto market capitalization is dominated by Bitcoin, historically indicating an overall bearish market environment.
However, there is a positive sign for the pioneer cryptocurrency. Bitcoin on-chain data shows that short-term holders of BTC are moving the coins at a profit. The 7-day moving average of the short-term holder’s spent output profit ratio (SOPR) has recently risen back to above 1. This could indicate a potential price reversal for the leading cryptocurrency.
When the short-term holder SOPR is at a value higher than 1, it indicates that the average short-term holder of Bitcoin has been able to sell the coin at a profit.
A reading of 1 means that the average short-term holder is breaking even. During the consistent decline in price from April 2022 to December 2022, the SOPR reading has also steadily stayed below 1 – meaning that short-term holders are selling at a loss.
Bitcoin could expect bigger moves ahead despite the overall declining momentum as the Bollinger Bands are squeezing, which is typically indicative of periods of low volatility that are usually succeeded by high volatility.
Key resistance levels to look out for:
$28,311 - 50-day Simple Moving Average (SMA) and 61.8% Fibonacci retracement level
$28,988 - 78.6% Fibonacci retracement level
Key support levels to look out for:
$27,359 - 38.2% Fibonacci retracement level
$26,770 - 100-day SMA and 23.6% Fibonacci retracement level
Ethereum prints falling wedge pattern
Ethereum has recently formed a falling wedge pattern on the daily chart, suggesting that the recent period of stagnation could soon come to an end. Similar to the Bitcoin chart, the Bollinger Bands are also squeezing – indicating ETH could also expect volatility ahead.
It appears that Ethereum has sliced above the upper boundary of the chart pattern, aiming for the next resistance level at nearly $2,000.
Key resistance levels to watch:
$1,989 - 61.8% Fibonacci retracement level and 50-day SMA
$2,057 - 78.6% Fibonacci retracement level
Key support levels to watch:
$1,894 - 23.6% Fibonacci retracement level
$1,823 - 100-day SMA
Binance Coin continues to move sideways
Binance Coin has continued to consolidate as volumes have been muted. However, following the two largest cryptocurrencies by market capitalization, BNB may also soon see higher volatility.
BNB may continue to alternate between the 50-day SMA sitting at $320 which acts as resistance for the crypto asset, and the 200-day SMA at $301, which acts as steady support for the altcoin.
Key resistance levels to keep an eye on:
$315 - 100-day SMA
$320 - 50-day SMA and 38.2% Fibonacci retracement level
Key support level to keep an eye on:
$300 - 200-day SMA and swing low
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