Key Takeaways
Is another crypto market destruction likely?
With $1.1 trillion wiped out and macro volatility returning, the crypto market remains vulnerable to back-to-back losses.
How do investors position themselves?
The low bid support and high leverage risk are shifting investor preference towards equities as crypto struggles to find a stable footing.
Is the crypto market gearing up for another October-style cascade?
From a capital flow perspective, this setup is not unrealistic. Over the past 41 days, the crypto market has wiped out $1.1 trillion in total market cap. And yet the market capitalization is 10% below the level of the October crash.
In short: a real market recovery has not yet taken place.
As a result, HODLers’ patience is being severely tested.
And with macro volatility returning, conditions are rapidly tightening. So is the market gearing up for another major breakout before a real recovery begins?
The vulnerability of the crypto market is reaching a breaking point
The market is so fragile that one bearish move can trigger a cascade.
To start with the TOTAL Crypto Market Cap has been printing red candles back to back, reflecting nearly 20% outflows in the last three days alone. As a result, approximately $1.8 billion has disappeared from the derivatives market.
Specifically, 73% of these liquidations came from long positions, totaling $1.3 billion.
This in turn supports Tom Lee’s recent story argument That leverage is eroding investors’ risk appetite, putting on hold any meaningful recovery.
Source: CryptoQuant
Building on this, the data is consistent with what is happening in the chain.
Bitcoin [BTC] reserves have started to rise again, with positions on CEXs rising 0.63% over the past three days to 2.395 million BTC. In practical terms, that’s 15,000 BTC flowing back, about $1.4 billion at current prices.
Simply put, the crypto market does not have enough bidding to absorb more volatility.
So the real question is: What happens now that the reopening of the US government brings key economic data back into the mix?
A new week of macro pressure begins, putting markets on alert
The week is packed with a heavy line-up of economic data.
Both the September and October releases (including the jobs report) will finally be out after the shutdown pushed them into the backlog. But besides the macro prints, there is another important catalyst on deck.
Nvidia [NVDA] is set up to report income, with a implicit move of +/- 7.5%, indicating a market cap swing of $345 billion. That’s a huge amount of capital with clear potential to influence flows into the crypto market.
Source: TradingView (NVDA/USD)
This divergence specifically translates into price action.
On a quarterly basis, NVDA is still up 1.92%, while BTC is down 16.64%. weakest Q4 since 2019. Zooming in, NVDA closed its last trading day on November 14, it rose 1.77% versus BTC’s 5.2% dip.
Overall, with volatility high, bid support low and leverage risk high, investors prefer equities over crypto.
Against this backdrop, as macro pressures mount, a new cascade in the crypto market seems increasingly likely.