Last week, the U.S. Federal Reserve (Fed) unexpectedly initiated a loosening cycle with a substantial interest rate cut of 50 basis points. The Fed also hinted at two more rate cuts within the year. This move has rekindled hopes for a soft landing of the U.S. economy, suggesting a slowdown in economic growth without triggering a recession. Following the Federal Open Market Committee (FOMC) meeting, both U.S. stocks and Bitcoin recorded significant gains, with Bitcoin’s price rising by 5.2% within 24 hours after the announcement.
The cumulative volume delta (CVD) for Bitcoin, a metric that gauges net buying and selling pressure in the spot market, surged immediately after the Fed released its press statement at 18:00 UTC on September 18. As the Asian markets opened around 23:00 UTC, buying pressure on offshore exchanges intensified further.
The derivatives market experienced moderate capital inflows. Between September 16 and 19, Bitcoin’s open interest rose by approximately 12% on platforms such as Bybit, OKX, and Binance, reaching $12 billion.
The U.S. central bank is not the first major central bank to cut rates this year. The European Central Bank (ECB) and the Bank of England (BoE) had already implemented rate cuts earlier this summer. However, the market impact of those cuts was relatively muted, with Bitcoin prices actually declining in the days following the ECB and BoE announcements.
So, why did the market react so strongly to the Fed’s decision?
Lower U.S. interest rates typically lead to a weaker dollar. As the dollar is the primary quote asset for Bitcoin (BTC), a weaker dollar generally pushes up the price of Bitcoin when measured in dollars. Over the past few years, the trading volume of the dollar and dollar-pegged stablecoins has steadily increased, reaching a historic high of 93% last month among all fiat currencies and stablecoins.
Moreover, the Fed’s accommodative monetary policy enhances dollar liquidity in global markets, prompting investors to seek higher-yielding alternative assets, such as Bitcoin.
It is noteworthy that the historical negative correlation between the dollar and Bitcoin has weakened over the past month. In August, both Bitcoin and the Dollar Index (DXY) fell, indicating that other factors are also influencing the price movements of these two assets. One such factor is the upcoming U.S. presidential election; for instance, former President Donald Trump is currently viewed as a candidate favorable to both the dollar and Bitcoin.
Data Highlights:
Wallets associated with Alameda Research are consolidating assets. Reports suggest that crypto wallets linked to the FTX affiliate Alameda Research have been actively transferring funds over the past month, raising speculation that the bankruptcy estate of FTX may be consolidating assets to prepare for creditor repayments. Earlier this year, FTX announced that it had recovered enough tokens to fully repay most creditors based on the asset values at the time of filing for bankruptcy. The exchange is expected to begin repayments following the final approval of its liquidation plan in early October.
Using Kaiko’s crypto wallet data solution, we investigated the fund flows of a wallet (address: 0xf02e86d9e0efd57ad034faf52201b79917fe0713). Over the past month, this wallet transferred $1.6 million worth of ETH to the crypto custodian platform BitGo and $220,000 worth of World Coin (WLD) to Binance.
Transferring assets to exchanges is generally seen as a bearish signal, as traders typically move assets to exchanges with the intention to sell. Alameda Research is an early investor in Worldcoin, holding 75 million WLD tokens (valued at $118 million). Since July, these tokens have been gradually unlocked by Worldcoin’s developer Tools for Humanity (TFH).
A deeper analysis of the wallet’s inflows indicates that it is consolidating assets through multiple smaller wallets, which are likely owned by Alameda Research, with the largest single inflow being $1.27 million USDT from OKX.
As of September 18, Alameda’s wallet still holds $64 million worth of WLD tokens. A sell-off of these tokens could have a significant impact on the price, especially since the price has already fallen by 30% since the token unlock on July 24. Other major holdings include several illiquid small-cap tokens, such as FTX’s FTT (valued at $13 million) and Bona Network’s BOBA (valued at $9 million), both of which have market depths of only $700,000 per day.
In response to turbulence in the U.S. market, traders are turning to Crypto.com. This year, the cryptocurrency exchange landscape in the U.S. has changed due to regulatory shifts and market structure developments. Cboe Digital closed its digital asset spot trading business in June to focus on derivatives, a decision announced as early as April.
Since June, Crypto.com has seen a significant increase in trading volume and market share, suggesting that it may be benefiting from the closure of Cboe Digital. Trading volume has surged, accompanied by an increase in liquidity. During the summer, the 1% market depth for Bitcoin on the exchange rose sharply, surpassing Gemini and challenging Coinbase’s liquidity. Coinbase even lost market share in the third quarter.
Additionally, Crypto.com’s competitive fee structure may have contributed to increased trading activity on the platform. The exchange currently waives maker fees for VIP-level clients and has launched other promotional activities. Furthermore, Crypto.com’s fees are generally more competitive compared to other U.S. exchanges.
The simultaneous increase in liquidity and trading volume indicates that market makers have also become more active on Crypto.com. The growth in average trade size on the exchange is another sign that it may have gained more trading volume from Cboe’s closure.
Observing the trading activity of BTC, ETH, and USDT on weekdays, we see a steady increase in trading volume since March, with a notable rise during the summer. Since Cboe is an institution-focused trading platform, its average trade size is much larger than that of most retail platforms. The increase in trade size on Crypto.com indicates a rise in institutional activity.
Why is the liquidity of altcoins becoming more concentrated?
Despite significant volatility over the past few months, the 1% market depth for altcoins remained relatively stable in the third quarter, maintaining at $270 million, suggesting that market makers continue to provide liquidity despite ongoing volatility.
The liquidity of altcoins has been significantly impacted by the collapses of FTX and Terra, with liquidity dropping by over 60% between April and December 2022. However, over the past year, liquidity has gradually improved, surpassing the pre-FTX collapse average in the first quarter of 2024, although it has receded again in the third quarter.
Nevertheless, the recovery of this trend is not uniform across asset classes. The liquidity of altcoins is becoming increasingly concentrated, with larger coins outperforming smaller assets.
As of early September, the top ten altcoins by market capitalization accounted for 60% of the total market depth, compared to about 50% at the beginning of 2022. In contrast, the market share of the top 20 altcoins significantly declined over the same period, from 27% to 14%.
Moreover, liquidity in altcoins is also becoming more concentrated in offshore exchanges. These exchanges now account for 69% of the total altcoin depth, up from 55% at the beginning of 2022, a trend primarily driven by larger and mid-cap altcoins.
We observe the opposite trend for Bitcoin liquidity, with U.S. exchanges gaining share relative to offshore markets. This suggests that some market makers may have reduced portfolio risk or shifted their focus to Bitcoin.
Cooling of Exchange Listings in 2024
The intensification of global regulatory scrutiny has significantly altered the listing strategies of cryptocurrency exchanges, leading to a noticeable slowdown in the number of new listings compared to the bull market in 2021.
However, focusing solely on the nominal number of new listings does not fully reflect how exchanges are expanding their product lines. To provide a clearer perspective, we compared the number of new listings with the total number of active trading pairs on each exchange.
In 2024, Binance added over 300 trading pairs, ranking second only to MEXC. However, these new trading pairs accounted for only 27% of its total offerings, lagging behind Bybit, Poloniex, and OKX in listing expansion.
U.S.-based exchanges have been more conservative, with new trading pairs accounting for only 4% to 15% of their existing products. For example, Coinbase launched only 29 new trading pairs in 2024, a tenfold decrease compared to 2021.
Overall, new listings on major exchanges this year represent only about 20% of existing trading pairs, a significant decline from the average of 50% during the peak in 2021.
U.S. Presidential Election Triggers Crypto Market Volatility
Digital assets have become an increasingly prominent topic among the two main U.S. presidential candidates. Former President Trump committed months ago to support Bitcoin and its related fields and plans to launch his own cryptocurrency project in the coming weeks. Many market participants view this Republican candidate’s support for Bitcoin as positive.
However, this could also be a double-edged sword, as evidenced by recent debates. During the debates, Bitcoin’s price fell, and the market reacted poorly to Trump and Harris’s performances.
Before the debates, the implied volatility of Bitcoin options contracts expiring on November 8 from Deribit surged, as these contracts expire just three days after the U.S. voting. During the debates, the trading volume of special election contracts soared to over $40 million, with traders primarily buying put options that profit when Bitcoin prices fall.
The U.S. election may continue to be a source of increased market volatility in the coming weeks, as we enter the final phase of the election cycle. Although Bitcoin and digital assets did not take center stage in the 2020 campaign, their importance is growing this time. Former President Donald Trump has early signaled his position, pledging support for digital assets in the U.S. and speaking at the Bitcoin conference in August. While Kamala Harris has expressed less support for digital assets, the current Vice President stated at a fundraising event on Sunday that she would support innovation in digital assets
