Is Crypto in a Bear Market? Analyzing Bitcoin, Ethereum Dissonance

The crypto markets continue to bleed as Bitcoin and Ethereum fall to 83k and 2.6k levels respectively, then proceeding to bounce and level off at the 84k and 2.7k levels respectively. It appears that the once-massive gains made by the majors in the past 1 year, have been entirely erased, and are around -10% from a year ago.

Despite Nvidia’s (NASDAQ:NVDA) recent stellar earnings, its positive action was short-lived, with growing fears of an AI bubble. Despite the positive institutional adoption of crypto that many have been awaiting for years, such as Fidelity’s new Solana ETF (NYSE:FSOL), along with Canary and Marinade Finance rolling out the SOLC staking-enabled Solana ETF on Nasdaq, such news have been far outshadowed by poor price action of crypto and overall market fears.

While BTC and ETH DATCOs remain steadfast in maintaining their holdings, outflows from BTC and ETH ETFs have worsened week on week. This dissonance continues to beg the question - are we in a bear market? Or is this just a bump in the road? What could possibly take the crypto markets down even further - perhaps institutions with no choice but to sell down their assets due to loan obligations?

With hopes of a December rate cut by the Fed growing thinner, and a liquidity crunch in the short-term, many have surrendered and declared that we are in bear market territory. As Americans “take profit” to settle their taxes towards the end of the year, some postulate waiting for another month or so, to see if liquidity will return to equity and crypto markets, following the end of the US government shutdown. Regardless, let’s have a look at some data and have a stronger pulse on the markets.

DAT Flows (and mNAVs)

Similar to last week, BTC, ETH, and even HYPE DATs still appear to be holding strong - overall holdings haven’t dropped in the past month. In fact, the % of ETH held by DATs had increased from 0.043% on 14 November to 0.044% on 17 November. mNAVs, however, have mostly fallen across the board. Just like last week, with the supply of assets within DATs remaining rather flat, this indicates that the fall in mNAVs is price-driven, rather than due to the selling off of assets.

ETF Flows

Bitcoin ETF flows continue to bleed out. Last Thursday, a major outflow of 866.7m USD was observed. This week, on Thursday, that record has been broken, with an even bigger outflow of 903.2m USD.

As for ETH ETFs, just like BTC ETFs (and unlike DATCOs), sentiment has worsened, as we observe increased outflows compared to last week’s negative net flows.

Bitcoin Price Action

Looking at BTC price action, it appears that the line in the sand last week of BTC’s 98k levels has been crossed by a longshot. Week after week, lines in the sand at lower levels are consistently getting broken. In jest, but also not really, here are the new lines in the sand for BTC for this week - 88k and 74.5k.

ETH Price Action and ETH/BTC

As usual, similar price action to BTC was observed in ETH. Unlike last week, however, where there was a much clearer view on ETH’s relative strength to BTC, ETH/BTC is displaying ETH’s slight relative weakness to BTC this week, or perhaps a confusion in the markets as to which asset is seen as stronger, as the overall markets reel in turmoil.

OI and Vols

Based on the OI of futures across the exchanges, lots of leveraged shorts are observed across the majors. Here are the levels to be wary of to the downside or upside:

• 81k to 83k levels for BTC and high 2.6k- low 2.7k for ETH: Potential liquidations of many leveraged longs, that would trigger further downward price action

Given that ETH is hovering around this level currently, long squeezes for ETH may be imminent

• 84k+ for BTC and high 2.7k levels for ETH: Potential liquidations of many leveraged shorts, that would trigger upward price action

Looking at the BTC IV curves, downside wings appear to be at a high premium, as sentiment turns more and more bearish from session to session, with the 80k support level of BTC looking especially vulnerable. 

Closing Comments

So what now? There are many reasons to believe that there is a dissonance between what is going on in the world, versus what is observed in price action today. At the same time, there are also reasons for confluence between what is happening versus price action:

As much as I am open to the possibility that we may already be in bear market territory, I’ll be waiting to see if liquidity comes back into the markets in a month. After all, previously in 2019, when a US government shutdown occurred, BTC fell by ~20% and subsequently surged by 300% in the following few months.