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Crypto Market Review, August 3



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Arman Shirinyan

Market is seeing mild relief, but it might be reaction to previous volatility spike

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Shiba Inu has finally reached the important 50-day moving average resistance, which will be an important test for the asset in the next few days as it will decide the foreseeable future for SHIB: the continuation of the downtrend or another attempt to rush toward the next resistance level.

As we mentioned before, Shiba Inu successfully bounced off the local support level at around $0.0000115 thanks to the trendline. The positive price movement allowed Shiba Inu to continue its path in the local uptrend for another few days or even weeks.

SHIB Chart
Source: TradingView

Unfortunately, the lack of trading volume and market inflows caused a volatility crisis in which SHIB moved in the narrow 5% range for the last few days. For a token like SHIB, the lack of volatility is crucial as speculative traders provide most of the volume for the asset on the market.

Historically, SHIB saw an increase in trading volume and volatility at the start of reversals on the cryptocurrency market. The most recent recovery we saw back on Aug. 15 started prior to the price increase on bigger assets like Bitcoin and Ethereum.

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Without the recovery of the market in general, we will not see standalone rallies on tokens like Shiba Inu or coins like DOGE.

Institutions bet on continuation of bear market

U.Today has covered a series of articles and opinions issued by institutional giants like JP Morgan that believe in the continuation of the bear market in the digital assets industry. The main reason is the strict monetary policy in the U.S. that pushes down the popularity of risk-on assets like cryptocurrencies.

Earlier today, we covered Ethereum technical analysis quoted by Bloomberg, which suggested that another plunge is around the corner for the second biggest cryptocurrency on the market, considering the lack of excitement for the upcoming Merge update.

Funding rates go negative

With the absolute dominance of bears on the market, the funding rate on the biggest derivatives platforms like Binance, FTX and others dived to negative values, meaning, for opening a short order you would need to pay extra to market makers. This mechanism was created to maintain the balance on the market and avoid extreme spikes in volatility.

Despite the stalemate on the market, a large imbalance between short and long orders may sometimes become a sign of an upcoming short squeeze, as we saw back in February 2022. 

Crypto funding rates
Source: Coinglass

Because of the lack of resistance on the market, a spike in buying power covers all of the existing short orders, liquidates them and pushes the price of an asset to extreme values until profit-taking cools the rally off.

Unfortunately, in order to initiate a short squeeze at this price and open interest, investors would need to inject billions of dollars of liquidity onto the market, which would be a questionable decision under current conditions.

At press time, Ethereum is trading at $1,586, while Bitcoin is still moving in the consolidation range at around $20,000. Memetokens and coins like Shiba Inu and DOGE are not showing any serious progress on the market.



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