Sir John Templeton once stated that "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria". It seems that we have been seeing uncertainty in the crypto market for some time, stemming from declining confidence in the major exchanges. An example of this is the decline in Binance's market share of cryptocurrency exchanges - from 73% to around 50%. Despite this, bitcoin's listings have been rising to US$28,000 since reaching a low around US$15,000. Are we now seeing the end of the uptrend correction?
Binance legal problems
For several months now, the Binance exchange has been in the spotlight of regulators around the world. In April 2023, the US Securities and Exchange Commission (SEC) brought a lawsuit against Binance, accusing it of operating an unregulated business in the US. In May 2023, the exchange was fined £3.3 million by the UK financial regulator FCA for operating in the UK without the required licence.
These events contributed to the decline of Binance's shares in the cryptocurrency market. In January 2023 Binance dominated, accounting for 72.7% of total non-US cryptocurrency market turnover, according to data from THE BLOCK. However, by September, its share had fallen to around 50%.
Source: https://www.theblock.co/post/253132/binance-market-share-non-usd-exchanges
In response to these challenges, Binance has taken a number of steps to improve its situation. In July 2023, it announced a plan to phase out products and services that could raise concerns with regulators. In August 2023, Binance.US, a US exchange regulated by the SEC, was launched. Meanwhile, total turnover on cryptocurrency exchanges has fallen by 60% since the beginning of the year.
Source: https://www.theblock.co/data/crypto-markets/spot
The low trading volume is characterised by the fact that each major transaction causes significant fluctuations in the market, which has become noticeable in recent weeks. The sudden rise in price within a few minutes, offset later by a lack of demand, is a perfect example of this situation (see arrows on the chart). Investors with large amounts of capital, often referred to as 'whales', currently invest in the largest cryptocurrency, which accounts for 46% of the total market capitalisation of digital currencies.
Source: Conotoxia MT5, BTCUSD, H4
The progressive loss of money in the crypto market
One way to determine whether new funds are currently flowing into cryptocurrency market investments is to analyse the capitalisation of stablecoin. This allows us to see that capital in the cryptocurrency market has melted by 11.5% since the beginning of the year, and this downward trend has continued uninterrupted since May 2022. It seems that without an influx of new capital, it may be difficult to see a clear recovery of the cryptocurrency market.
Source: https://btctools.io/stats/market-cap
Is it so bad that it can't get any worse?
The data presented shows that the situation in this market is currently not very encouraging, and interest in it is clearly declining. Nevertheless, the listing of Bitcoin and other leading cryptocurrencies continues to rise. Is this behind the speculative play of big capital? This question seems particularly important given that none of the cryptocurrencies have an intrinsic value. Therefore, when analysing this market, we need to pay attention to completely different factors that seem to be influencing its resurgence, but in a longer time frame than we might assume.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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