Market Wrap: Altcoins Outperform Bitcoin, Traders Cautiously Await Breakouts

Bullish sentiment is returning to crypto markets after a sluggish start to the year. The recent outperformance of alternative cryptocurrencies (altcoins) indicates a greater appetite for risk among traders.

Bitcoin (BTC) and ether (ETH) were down 1% over 24 hours, compared with an 8% rise in Cardano’s ADA token and a 3% jump in dogecoin (DOGE). Meanwhile, LRC, the native token on the Ethereum scaling network Loopring, rallied as much as 34% after the blockchain project shared an update on its partnership with GameStop (GME).

Some analysts expect crypto prices to remain elevated over the short term, albeit in a higher range. That means a relief rally could be short-lived. For reference, BTC’s prior range between $30,000-$40,000 earlier this year preceded the current range between $40,000-$45,000, indicating a decline in selling pressure.

“There will be an upper limit to prices of risk assets, depending on how big [Federal Reserve] rate hikes will be,” Justin Chuh, a trader at Wave Financial, said during an interview with CoinDesk. Chuh also mentioned that some traders have not been picking price bottoms. Instead, traders have been unwinding downside hedges and selling volatility contracts as prices stabilize, according to Chuh.

From a technical perspective, short-term indicators are improving for bitcoin. “We expect recent highs near $45,000 to soon be cleared as a positive catalyst,” Katie Stockton, managing partner at Fairlead Strategies wrote in a report. “A breakout earlier this month suggested bitcoin has upside toward $51,000.”

●Bitcoin (BTC): $42,334, −0.36%

●Ether (ETH): $2,978, −0.81%

●S&P 500 daily close: $4,456, −1.23%

●Gold: $1,947 per troy ounce, +1.38%

●Ten-year Treasury yield daily close: 2.32%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Open interest, or the total amount of outstanding contracts in the bitcoin futures market, has stabilized over the past few months. That could point to fewer liquidations as bitcoin trades within a narrow price range, according to a report by Arcane Research.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading, which only tracks asset prices, as opposed to spot trading, where traders own the actual assets.

“We’ve rarely seen open interest being maintained at such levels for such a long duration without any major squeeze setbacks,” Arcane wrote. Low trading activity doesn’t last long, however, which means a breakout of the current BTC trading range could be imminent.

The chart in the second panel below shows the 30-day volatility of BTC open interest, which is far lower than the previous lows of 2% seen in July, late August and early December, which preceded brief upticks in trading activity.

Still, some indicators show a high degree of uncertainty among bitcoin traders, which suggests upswings in price could be limited.

For example, funding rates, or the cost holding long BTC positions in perpetual futures listed on major exchanges, have been neutral/negative over the past few months. That means sentiment among traders is neither bullish or bearish (lacking conviction) despite bitcoin’s 30% advance from its Jan. 24 price low near $33,000.

Digital assets in the CoinDesk 20 ended the day higher.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.