↯ Summary of key points
This week, we had the “darkest moment” of the bull market. Liquidity in the digital asset market was not significantly impacted by the combined efforts of many parties. The market did panic, but fortunately, it did not cause a “widespread panic” and it is still too early to say that the bull market is over. However, the high-risk dynamic in the digital asset market is likely to continue in recent days and it will take time for market confidence to return.
As of 11:00 on May 21, Bitcoin perpetual contract historical volatility in the digital asset market rose to a high of 181.3, while Ether historical volatility reached an “appalling” 252.86, with a clear separation from spot index price historical volatility, which is rare in the history of digital assets.
Ether spot index price vs. historical volatility of perpetual contracts, source: gvol.io
Although the market has now stabilized from the short-lived panic, with Bitcoin price stabilizing around $40,000 and Ether successfully stabilizing around $2,500 as of 14:00 on May 21 after falling to $29,000 at one point, the large number of contract blowouts, panic selling pressure, and DeFi liquidation still have investors on edge. Even “industry vlogger” Sun Yuchen was just one step away from liquidating his 600,000 ETH positions; it can be said that May 19 was the “darkest moment” of this bull market in the digital asset market.
Last 90 days bitcoin price movement as of May 20, 2021 0:00, source: tokeninsight.com
Last 90 days bitcoin price movement as of May 20, 2021 0:00, source: tokeninsight.com
Since May 18th, TokenInsight has been closely tracking the movements of various market data throughout. Is the bull market over? What factors triggered the sudden panic and plunge of the market? We have found some clues through various data indicators.
Was there a widespread panic in the market?
The market did panic, but this market did not trigger a “widespread panic”.
As an important gathering place for speculators in the digital asset market, the market performance of perpetual contracts often reflects the mood swings of speculators. In terms of volume, the market is essentially the same as it was at the end of February when there was massive volatility: in the case of Bitcoin, for example, the volume of perpetual contracts on February 23 and 24 was over $370 billion, while this time the volume of perpetual contracts was around $320 billion, not the highest this year. The possible reason is that the market has been in a long-term sideways market to build down expectations, so this decline, the scale of panic selling is relatively limited, pushing up trading volume is more likely to be in the liquidation of the contract burst caused by the liquidation.
Of course, the sell-off is not non-existent: as of 15:00 on May 21, bitcoin perpetual contract positions fell to $15.6 billion, down 29.54% compared to last week and slightly above the weekly price fluctuations of around 21%. This suggests that some investors have chosen to close out their positions in a highly volatile market, but overall, the decline in market positions is not significant enough to meet the “significant impact” standard.
Bitcoin contract volume movement over the last 90 days, as of May 21, 15:00, source: tokeninsight.com
Liquidation volume on the other hand confirms the “limited panic” view. Before the massive liquidation on May 19th, the April 17th selloff actually led to a relatively larger liquidation: Bitcoin fell from around $62,000 to around $55,000 on that day, with a combined liquidation volume of over $10 billion on both the long and short sides. At this point, expectations of a decline had already been established; there was a consensus that a pullback would occur mid-year in the market. Due to the early release of pressure, the liquidation volume on May 19 was less than $8.6 billion, largely avoiding a liquidity crisis and even further chain reactions caused by too many market explosions.
Daily market-wide perpetual contract liquidation volume changes over the last 90 days, source: bybt.com
On the spot market, May 19 saw the second trading spike since early January: Bitcoin volume reached $45.64 billion on the day after the price drop, while market-wide pass-through spot volume reached $232.3 billion. There appeared to be a selling wave; but it was not to be. While a large number of retail investors chose to sell their digital assets, a large number of European and American investment institutions and retail investors who wanted to “bottom out” chose to buy at lower levels, and the large number of buying and selling operations that day pushed up the volume, but of course also caused some impact on the exchanges: Binance and Coinbase both experienced varying degrees of trading data processing and clearing due to Binance and Coinbase both experienced varying degrees of trading congestion and downtime due to excessive transaction data processing and clearing. However, with the combined efforts of liquidity providers, market makers, quantitative hedge funds, exchanges, and even individual investors, digital asset market liquidity has not been significantly affected.
Volume movement in the digital asset spot market in the last 90 days, source: tokeninsight.com
In terms of capital inflows/outflows, the mainstream digital asset markets such as bitcoin and ethereum were actually in net inflow after the 19th. within 24 hours, the net inflow of capital in the bitcoin market reached $250 million, while ethereum reached $330 million. And from an overall perspective, the trend of net outflows in bitcoin and net inflows in the high yield digital asset markets such as ethereum has not changed in recent January, and the bitcoin market cap ratio also remains at a low level of below 45%.
Net inflow/outflow of Bitcoin and Ether funds in the last 30 days, source: tokeninsight.com
Who is FOMO?
The 24-hour inflow and outflow of funds within different exchanges also reveals the geographical nature of the panic and sell-off. On Binance, Huobi, and OKEx, the Bitcoin market is in a state of net or “near net outflows”; the sell-offs are mainly in small amounts, with Binance showing a net outflow in large transactions; all three exchanges have a large number of users from All three exchanges have a large number of users from East Asia, with Huobi and OKEx accounting for the majority of users from East Asia.
Bitcoin market fund flows on Binance, Huobi, and OKEx exchanges in the last 24 hours, source: tokeninsight.com
In contrast, on the Coinbase, FTX, and Bitstamp exchanges, where European and American investors are concentrated, both large and small investors are actively buying bitcoin, with a significant net inflow of funds. In the ethereum market, most of the mainstream exchanges, except for Binance, are showing significant inflows. The same is true for the last 30 days of data.
The above information suggests that the sell-off and selling pressure in the Bitcoin market is likely to come from East Asia, and the impact on Ether is relatively small. The Bitcoin market is experiencing a divergence. What’s happening in East Asia?
Bitcoin market money flow movements on Coinbase, FTX, Bitstamp exchanges in the last 24 hours, source: tokeninsight.com
Nearly 30 days of Bitcoin market outflows on major exchanges in East Asia / Bitcoin market inflows on major exchanges in Europe and the US, source: tokeninsight.com
After the Dark: The Market is Still in a High Risk Phase
Admittedly, the digital asset market as a whole was not hit hard on May 19. However, with the influence of factors such as the Fed considering stopping QE, clear expectations of interest rate hikes, and high inflation, inflows into the digital asset market may gradually flow out in the future, or even puncture the bubble and end the bull market under the influence of certain major events, but it is still too early to say that the bull market is over.
However, the volatility differential continues to be positive and has widened, indicating that the high volatility and downside trend is still ongoing; given the predictive effect of the volatility differential on market performance, it is likely that the high risk profile of the digital asset market will continue in recent days. It will take time for market confidence to return; and from the expectations of professional investors, it may take longer than expected for the market to return to normal levels ($2 trillion+ market cap) during this bull market. Risk expectations and control will be a central theme for investors in recent days and weeks.
Recent Ether options historical volatility and implied volatility performance, source: gvol.io
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/market-watch-may-19-the-darkest-hour/
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