Market Wrap: Bitcoin Dips, Stocks Plummet as Volatility Spikes

·5 min read

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Bitcoin (BTC) declined by nearly 3% from a high of $30,654 on Wednesday, tracking losses in U.S. stock markets, which included a drop of over 1,200 points on the Dow Jones Industrial Average and losses of over 4% on the Nasdaq and S&P 500.

The cryptocurrency has been stuck in a tight trading range over the past few days, although volatility remains elevated. That could increase the risk of greater price swings or a potential breakdown on the charts.

For now, alternative cryptos (altcoins) continue to underperform bitcoin, indicating a lower appetite for risk among crypto traders. For example, ether (ETH) was down by 4% over the past 24 hours, compared with a 3% dip in BTC over the same period. Solana's SOL token declined by 7% and Decentraland's MANA token was down by 10% on Wednesday.

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The stock market declines came after retail and tech stocks underperformed on Wednesday. Also, the Chicago Board Options Exchange's CBOE Volatility Index (VIX), a popular measure of the stock market's expectation of volatility based on S&P 500 index options, ticked higher on Wednesday, reversing a week-long downtrend.

Latest prices

Bitcoin (BTC): $29,225, −2.67%

Ether (ETH): $1,975, −3.28%

S&P 500 daily close: $3,924, −4.03%

Gold: $1,814 per troy ounce, −0.21%

Ten-year Treasury yield daily close: 2.89%


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.

Volatility returns

Bitcoin's short-term realized volatility remains elevated as the cryptocurrency struggles to hold the $30,000 price level. And implied volatility (based on the market's expectation for movement over one week), ticked higher on Wednesday. That suggests price action could remain choppy as traders react to macroeconomic risk and turmoil in the stablecoin market.

Option market data still shows increased demand for puts versus calls, which means traders are actively hedging the risk of continued price declines.

Currently, the options market places a 66% probability that BTC will trade above $25,000 in June, according to data provided by Skew.

Bitcoin realized volatility (Skew)
Bitcoin realized volatility (Skew)
Bitcoin implied volatility (Skew)
Bitcoin implied volatility (Skew)

Sellers in control

The chart below shows the ratio of buy volume divided by sell volume in bitcoin's perpetual swaps market, a type of derivative trading product similar to futures in traditional markets.

Values greater than 1 indicate bullish sentiment, while values less than 1 indicate bearish sentiment. The 50-day moving average of the buy/sell volume ratio has declined over the past two months, indicating persistent selling pressure.

Further, the ratio is still above prior lows, which suggests the downtrend in BTC's price could continue until buyers return with greater conviction.

Bitcoin buy/sell volume (CryptoQuant)
Bitcoin buy/sell volume (CryptoQuant)

Altcoin roundup

  • Do Kwon plans to put Terra back on track: Terraform Labs founder Do Kwon on Wednesday morning announced an on-chain governance proposal even as results from a preliminary online poll on a hard fork plan found minimal backing among community members. The new chain would entirely cut out the failed UST product and instead focus on decentralized finance (DeFi) applications building on Terra. Read more here.

  • Aave's decentralized social media platform arrives on Polygon: Lens Protocol opened on the Polygon blockchain mainnet Wednesday. Built by Aave Companies, it allows developers to build their own decentralized social media networks in which users fully own their data. The protocol was first announced in February, but now people can starting minting their profiles. Read more here.

  • NFT-focused venture fund: Hackathon organizer DoraHacks has raised $20 million in a funding round led by FTX Ventures, the investment arm of crypto exchange FTX, and Liberty City Ventures. The capital will be used to drive the launches of the Dora Grant DAO, a decentralized grant community, and Dora Infinite Fund, a venture fund focused on non-fungible tokens (NFT). Read more here.

Relevant insight

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

There are no gainers in CoinDesk 20 today.

Biggest Losers

Asset

Ticker

Returns

DACS Sector

Bitcoin Cash

BCH

−7.2%

Currency

Polygon

MATIC

−6.7%

Smart Contract Platform

Polkadot

DOT

−6.6%

Smart Contract Platform

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.

UPDATE (May 18 20:45 UTC): Adds information on the U.S. stock markets and their declines.

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