Bitcoin plunged 56% in Q2 2022. Meanwhile, Ethereum’s quarterly results were negative 67%. Low volumes and open interest suggest further losses in the third quarter of 2022.
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Bitcoin’s status as a hedge asset has been questioned in the second quarter of 2022 by a sharp drop in global financial markets. Ethereum is underperforming Bitcoin and liquidity is drying up on all major cryptocurrency exchanges.
Low liquidity until Q3 2022
Bitcoin and Ethereum could see further losses in the next quarter of the year.
The top two cryptoassets closed the second quarter of 2022 on a negative note amid declining market interest and a deteriorating macroeconomic environment. Bitcoin posted a quarterly loss of more than 56%, while Ethereum fell more than 67%. The Federal Reserve has pledged to raise interest rates and tighten measures to curb inflation this year, hitting risk assets such as cryptocurrencies hard. In addition, economists warned that a global recession may be imminent, raising concerns among investors.
While Bitcoin and Ethereum’s downtrends were steep in the second quarter, trading history suggests that both assets could accelerate their declines over the next three months. During the crypto bear markets of 2011, 2014 and 2018, Bitcoin lost 68%, 40% and 2.8% respectively in the third quarter.
The recent drop in trading volumes and open interest on crypto derivatives exchanges also hints that the market could face further pain. In May 2021, futures trading volume on top cryptocurrency exchanges reached a high of $481.7 billion. Trading volumes have since made a series of lower highs. The most recent surge occurred on June 14, when about $270.7 billion worth of derivatives were traded in one day. Today, trading volume hovered at $57.2 billion, suggesting lower liquidity and interest in Bitcoin and the broader cryptocurrency market.
Likewise, Bitcoin’s open interest is trending down, indicating that traders are closing their positions. This indicator highlights the number of open long and short BTC positions on crypto derivatives exchanges. If open interest continues to move lower, this could indicate that money is flowing out of the market, potentially leading to a sharp pullback.
Bitcoin and Ethereum remain stagnant
While several data points suggest that Bitcoin and Ethereum may fall, both cryptocurrencies are showing ambiguity from a technical standpoint.
BTC appears to be consolidating within a symmetrical triangle formed on its four-hour chart. As it approaches the apex of the pattern, the likelihood of a sharp price move increases. The height of the Y-axis of the triangle suggests that the top cryptocurrency is set to gain 24.6% after breaking the $20,900 resistance or $18,660 support.
ETH also appears to be consolidating within an ascending triangle that has begun to develop on its four-hour chart. Technical patterns suggest that a sustained close below $1,020 could lead to a drop to $750. However, according to the chart pattern, if ETH can break the $1,290 resistance, it could surge towards $1,700.
It remains unclear how the next quarter will play out given the murky outlook that currently exists for Bitcoin and Ethereum. While the odds appear to favor the bears, high volatility in the crypto markets could trigger a brief bullish breakout ahead of lower lows.
Disclosure: At the time of writing, the author of this feature owns BTC and ETH.
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