Risk Appetite Returning to Crypto Markets Following Mass Liquidations and Deleveraging: Bitfinex
Research from crypto exchange Bitfinex says that appetite for risk assets is heating up once again.
In its latest research report, Bitfinex says that Bitcoin (BTC) is showing a stronger correlation with US equities, indicating a return of risk-on sentiment in crypto.
Bitfinex also says that the significant amount of liquidations that occurred during the recent correction has likely reset the market into more favorable territory.
“The rally occurred amidst a backdrop of increasing positive correlation between Bitcoin and US equities. Until now, Bitcoin has shown relative weakness compared to equities since hitting its early August low. Friday’s price surge also saw a sharp increase in correlation, which we believe indicates a return of risk appetite to the market.
Added to this are the significant short liquidations seen on August 23rd, with $40 million in BTC perpetual futures liquidations and $140 million across all pairs. This comes as there has been a substantial drop in open interest, suggesting reduced leverage in the market.”
The newsletter points out how BTC reacted positively to US Federal Reserve Chair Jerome Powell’s comments suggesting potential rate cuts, leaping to $65,000 earlier this week.
“This shows that despite an increase in risk appetite across risk assets, the amount of market participants leveraged long across all assets has decreased significantly which potentially increases the room for prices to move higher, for both BTC and altcoins.”
According to Bitfinex, it is normal for higher-risk assets like crypto to react later than less-volatile assets, such as US equities, implying that BTC could print a delayed rally following the stock markets recent strength.
“It is a common occurrence that higher volatility assets move later as compared to lower volatility assets, in this case, equities. Our previous edition of Bitfinex Alpha covered how BTC is trading well within the trajectory of past bull markets.
The market is clearly exhibiting a risk-on sentiment, encouraged by the apparent imminence of rate cuts, and the current lack of overhang, given the complete distribution of seized bitcoins by German law enforcement, while the Mt. Gox distribution is almost complete.”
BTC is worth $63,598 at time of writing, up 9% over the last week.
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