The crypto market is known for its dramatic volatility, mainly driven by events that influence the crypto asset prices. 2023 has seen a consistent volume of cash outflows as more investors opt out of the industry, which is expected, especially after the collapse of the largest crypto exchange, FTX, late last year.
August was particularly a bad month for the crypto market. Bitcoin experienced its worst red monthly candle since November 2022. The price of Bitcoin plummeted by more than 10% in the last month, when it fell from $ 30,000 to nearly $25,000.
Capital outflows also hit an unprecedented high of $55 Billion in August, according to a report by Bitfinex. The report is based on an aggregate value that accounts for the capital of Ethereum and Bitcoin and the five top stablecoins TrueUSD (TUSD), Tether, DAI, Binance USD (BUSD), and USD Coin.
Crypto markets see the worst month yet in 2023
Highlighted is that the industry struggled most in the first and second quarters. However, this was quickly overturned in July when Bitcoin experienced a large volume of inflows that saw the currency flirt with the $30000 mark, with more than $100 billion coming into the industry.
This was shortlived in early August, shortly after the interest rate hike by the SEC in July, triggering mixed signals and thus the capital outflows.
The volatility in the crypto market in August was not confined to Bitcoin in the past month. Capital outflows also had a ripple effect on other digital currencies, such as Ethereum. The report also highlighted the event-based volatility, which also played a part in influencing the market shocks in the past month.
Some of these events include the August 17 plummet, after speculation that Space X could sell its crypto holdings, which saw Bitcoin prices hit lows of up to 12%, triggering selloffs by investors, and the recent Grayscale victory against the Securities Exchange Commission(SEC) on August 29, which saw the price of Bitcoin rise by almost 8% in two hours.
August also experienced China’s second most prominent real estate giant, Evergrande, file for bankruptcy and saw $820 million in positions liquidated, further contributing to the outflows.
How’s the market liquidity crisis shaping the industry?
According to Bitfinex, while volatility indicators remain low, the market’s liquidity crisis has made it possible for single events to influence market movements significantly. The analysis also adds that Bitcoin open interest outperformed the crypto markets in the past month as institutional interest grew and wash trading became more common on several exchanges.
Ether futures and options have plunged this year, experiencing a decrease to about $14 billion per day, amounting to a 50% decline on a two-year average.
The open interest in a contract such as that in the derivative markets indicates the number of open positions and the amount of money invested in the futures and options. These patterns of low liquidity are mirrored by the trajectory seen in the derivatives market, especially in open interest across both futures and options.
According to coin shares reports, the crypto markets have been experiencing a month of significant capital outflows, with Bitcoin alone recording about $69 million from the 3rd to the 9th of September.
September has been rather quiet in market fluctuations even as the market anticipates the next Bull run in November, which is coined ‘’Bitcoin Month’’ every four years.
There is a need to address the capital outflows in the industry and the liquidity crisis seen in August. The data shows that the crypto market is at a crossroads, beset by increased volatility and changing dynamics, with $55 billion leaving the ecosystem and influencing a spectrum of assets in the industry.
