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Market shell: Bitcoin stabilizes as risk appetite diminishes

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Bitcoin continues to struggle after Monday's sell-off, although the cryptocurrency appears to have stabilized slightly above the USD 40,000 support level during the press release


Bitcoin continues to struggle after Monday's sell-off, although the cryptocurrency appears to have stabilized slightly above the USD 40,000 support level during the press release. BTC is down 3% in the last 24 hours and analysts expect the download to end by the end of the week. “Prior to the Flash crash earlier this month, funding levels were quite high, indicating increasing debt inflows,” Delphi Digital, a crypto research firm, wrote in a report Tuesday. “However, the market was not positioned aggressively this time around, which resulted in a slightly brighter outcome.”

The funding amount is the cost of funding a long position on the perpetual bitcoin exchange market, a type of derivative found in the cryptocurrency market, such as futures contracts in traditional markets. So far, the technical chart shows strong resistance to overhead costs above $45,000, which could limit near-term buying. That volatility could remain high this week as the Fed's monetary policy meeting ends on Wednesday and bitcoin options expire on Friday at the end of the quarter. However, in the long term, Bitcoin's upward trend will remain intact. “Bitcoin is still in a long-term uptrend, with our monthly indicators pointing upwards, which puts near-term volatility in a bullish context,” wrote Katie Stockton, Managing Director of Fairlead Strategies. Stockton added that a prolonged lull in assets deemed risky, such as stocks, commodities and cryptocurrencies, has prevented alternative coins from regaining leadership for now.

Latest price

Bitcoin (BTC), $42,109, -4.5%

Ether (ETH), $2.894, -6.3%

S&P 500: -0.1%

Gold: $1,774, +0.6%

10-year government bond yield ends at 1.321%

Relative returns

Despite the recent sell-off, Bitcoin continues to outperform traditional assets like stocks and gold to this day. However, BTC's correlation with the S&P 500 has increased in recent months, leaving the cryptocurrency vulnerable to general changes in investors' risk appetite. "In all fairness, the market we're looking at reflects a wider range of risk than just Chinese real estate, and comes after the increasingly popular question of whether current forecasts can still be justified with possible adjustments," said Jim Reed, strategist at Deutsche. Banks, wrote in a statement on Tuesday. About 68% of Deutsche Bank investors last week expected a price correction of at least 5% in the stock market by the end of the year.

Bitcoin is more volatile than traditional assets, although Bitcoin usage usually coincides with the S&P 500. Bitcoin's rally over the past two months has been short-lived given the recent sell-off, and its pullback could precede greater volatility in equity markets, similar to the previous two years. However, gold has suffered a lengthy setback this year; now just under 14%, as the precious metal's upward trend has weakened for macroeconomic reasons.

 Realized loss deepens

According to blockchain data compiled by Glassnode, BTC made a net loss of $650 million on Tuesday. The chart below shows the realized Bitcoin net gain/loss of all BTC transferred over time. The current loss is the biggest since June 25, when Bitcoin was trading around $31,600. Additionally, futures data shows that BTC traders are liquidating long positions faster than selling earlier this month. This suggests that "many leverage traders have tried to catch the falling knife," Glassnode tweeted, referring to traders trying to buy the dips. It is too early to say whether more traders are liquidating short positions than long positions, which could indicate a surrender.

Overview of altcoins

SEC Gary Gensler Says "Most" Cryptocurrencies Are Similar to Securities: The chairman of the US Securities and Exchange Commission has doubled down on his position that his agency has "solid" power to regulate the cryptocurrency industry, telling the Washington Post on Tuesday that "the vast majority of cryptocurrencies have the attributes of securities." Gensler added that the SEC, led by Treasury Secretary Janet Yellen, is preparing a report on stable coins, Cheyenne Ligon told CoinDesk. She also said the SEC is working with banking regulators to get increased powers from Congress to regulate stable coins.

Asset manager Osprey launches Polygon Fund: The Osprey Fund has launched its fifth digital investment product – a landfill trust that invests in MATIC, the native token of the Polygon network, Nate DiCamillo told CoinDesk. “The landfill is a destructive Layer 2 technology that leverages the Ethereum secure network while mitigating common blockchain wounds such as high gas fees and slow transactions,” said Greg King, CEO of Osprey. "We are excited to offer investors a new way to enter the growing Ethereum market through the Osprey Polygon Trust."

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