The Federal Reserve cuts interest rates aggressively, and risk appetite in the crypto market soars

Written by Kaiko

Compiled by: Block unicorn

Last week, the U.S. Federal Reserve System (Fed) kicked off an easing cycle with an unexpectedly large interest rate cut of 50 basis points.The Fed also hinted at two more rate cuts this year. The move rekindled hopes for a soft landing for the U.S. economy, where economic growth slows without triggering a recession. In response, both U.S. stocks and Bitcoin recorded significant gains after the Federal Open Market Committee (FOMC) meeting, with Bitcoin prices rising by 5.2% in the 24 hours following the announcement.

Bitcoin’s CVD (cumulative volume difference) — a measure of net buying and selling pressure in the spot market — spiked immediately after the Fed’s press release at 18:00 UTC on September 18. As Asian markets opened around 23:00 UTC, offshoreexchangeThe buying pressure further increased.

Derivatives markets saw modest capital inflows. Between September 16 and 19, Bitcoin’s open interestcontractOn Bybit, OKX andBinance(Binance) and other platforms increased by about 12% to 12 billion US dollars.

The U.S. central bank is not the first major central bank to cut interest rates this year. The European Central Bank (ECB) and the Bank of England (BoE) cut interest rates earlier this summer. However, the market impact of these rate cuts was relatively mild, and the price of Bitcoin actually fell in the days after the ECB and BoE announced the rate cuts.

So why did the market react so strongly to the Fed's decision?

Lower US interest rates typically lead to a weaker dollar. Since the dollar is the main quoted asset for Bitcoin (BTC), a weaker dollar typically pushes up the price of Bitcoin in USD terms. The share of USD and USD-backed stablecoins in transaction volume among all fiat currencies and stablecoins has been steadily increasing over the past few years, reaching an all-time high of 93% last month.

In addition, the Federal Reserve’s loose monetary policy will also increase dollar liquidity in global markets, prompting investors to look for higher-yielding alternative assets such as Bitcoin.

It is worth noting that the historical negative correlation between the US dollar and Bitcoin has weakened over the past month, with both Bitcoin and the US Dollar Index (DXY) falling in August, suggesting that other factors are also influencing the price action of both assets. One of these factors is the upcoming US election, with former President Donald Trump currently considered a favorable candidate for both the dollar and Bitcoin.

Data highlights:

Related to Alameda ResearchwalletAssets are being integrated.

Cryptocurrency rumored to be linked to FTX affiliate Alameda ResearchwalletThe aggressive movement of funds over the past month has fueled speculation that the FTX bankruptcy estate may be consolidating assets in preparation for paying back creditors. Earlier this year, FTX announced that it had recovered enoughToken, will be able to repay most creditors in full based on the value of its assets at the time of bankruptcy filing.exchangeRepayments will begin after the final approval of the liquidation plan in early October.

通过 Kaiko 的加密wallet数据解决方案，我们调查了钱包 ( 地址为 0xf02e86d9e0efd57ad034faf52201b79917fe0713) 的资金流动。在过去一个月内，该钱包向加密托管平台 BitGo 转移了价值 160 万美元的 ETH，并向Binance$220,000 of World Coin (WLD) was transferred.

转移资产至交易所通常被视为看跌信号，因为交易者通常将资产转移到交易所是为了卖出。Alameda Research 是 Worldcoin 的早期投资者，持有 7500 万枚（价值 1.18 亿美元）的 WLD TokenSince July, theseTokenUnlocked gradually by Tools for Humanity (TFH), the developer of Worldcoin.

A deeper analysis of the inflows into this wallet shows that it consolidates assets through multiple small wallets, which are likely owned by Alameda Research, with the largest inflow being $1.27 million in 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 fallen by 30% since the token unlock on July 24. Other major holdings include several small and illiquid tokens such as FTX’s FTT ($13 million) and Bona Network’s BOBA ($9 million) tokens, both of which have a market depth of only $700,000 per day.

Traders turn to Crypto.com as U.S. markets slump. This year, the U.S. has seen a surge in trading volumes due to regulatory changes and market structure developments.cryptocurrencyThe exchange landscape has changed. Cboe Digital shut down its digital asset spot trading business in June to focus on derivatives, although it had announced the plan in April.

Crypto.com has seen significant growth in volume and market share since June, suggesting it may have benefited from the closure of Cboe Digital. Volumes have surged, and so has liquidity. During the summer, the exchange’s Bitcoin 1% market depth rose sharply, surpassing Gemini and challenging Coinbase’s liquidity. Coinbase even lost market share in the third quarter.

In addition, Crypto.com’s competitive fee structure may also have boosted trading activity on the platform. The exchange currently waives market maker fees for VIP-level customers and has launched other promotions. In addition, Crypto.com’s fees are generally competitive compared to other US exchanges.

The simultaneous increase in liquidity and trading volume suggests that market makers have also become more active on Crypto.com. The exchange’s growth in average trade size is another sign that it may have gained more volume from the Cboe closure.

If we look at weekday trading for BTC, ETH, and USDT, volumes have been rising steadily since March, with a noticeable increase during the summer. Since Cboe is an institutional-oriented trading platform, its average trade size is much higher than most retail platforms. The rise in trade size on Crypto.com indicates an increase in institutional activity.

Why is the liquidity of altcoins becoming increasingly concentrated?

Despite the volatility of the past few months, the altcoin 1% market depth remained relatively stable in Q3, remaining at $270 million, indicating that market makers are still providing liquidity despite the continued volatility.

Altcoin liquidity was significantly impacted by the FTX and Terra crashes, with liquidity falling by more than 60% between April and December 2022. However, liquidity has gradually improved over the past year, exceeding the average level before the FTX crash in the first quarter of 2024, but fell back in the third quarter.

However, the recovery of this trend has been uneven by asset class, with liquidity becoming increasingly concentrated in altcoins, with large-cap coins outperforming smaller assets.

As of early September, the top ten altcoins by market cap accounted for 60% of total market depth, compared to approximately 50% at the beginning of 2022. In contrast, the market share of the top 20 altcoins has dropped significantly over the same period, from 27% to 14%.

In addition, altcoin liquidity is increasingly concentrated on offshore exchanges. The share of these exchanges in total altcoin depth has risen from 55% at the beginning of 2022 to 69%, a trend driven mainly by large and medium-sized market capitalization altcoins.

We observe an opposite trend in Bitcoin liquidity, with U.S. exchanges increasing their share relative to offshore markets. This suggests that some market makers may have reduced portfolio risk or rotated into Bitcoin.

Exchange listings cool down in 2024

Increased global regulatory scrutiny has significantly changedcryptocurrencyThe exchange's listing strategy has resulted in a significant slowdown in the number of new listings compared to the 2021 bull market.

However, focusing only on the notional volume of new listings does not fully reflect how exchanges are expanding their product lines. To provide a clearer perspective, we compared the ratio of new listings to the total number of active trading pairs on each exchange.

Binance added more than 300 trading pairs in 2024, ranking second only to MEXC. However, these new trading pairs only account for 27% of its total offering, lagging behind Bybit, Poloniex, and OKX in terms of listing expansion.

US-based exchanges were more conservative, with newly listed 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 drop compared to 2021.

Overall, newly listed trading pairs on major exchanges this year account for only about 20% of existing trading pairs, a significant drop from the average level of 50% during the peak of 2021.

US presidential election sparks crypto market volatility

Digital assets become an increasingly prominent issue among the two major U.S. presidential candidatesXiaobai Navigation。前总统特朗普数月前承诺支持比特币及其相关领域，并计划在未来几周推出自己的cryptocurrency项目。许多市场参与者认为，这位共和党候选人对比特币的支持是积极的。

However, this can also be a double-edged sword, as shown by the recent debate. During the debate, Bitcoin prices fell and the market reacted poorly to Trump's performance with Harris.

Before the debate, Deribit’s November 8 Bitcoin optionscontractThe implied volatility of thesecontractExpiring just 3 days after the U.S. votes, trading volume on the special election contracts surged to over $40 million during the debate, with traders primarily buying put options, which profit when the price of Bitcoin falls.

The U.S. election will likely continue to be a source of heightened market volatility in the coming weeks as we enter the final stretch of the election cycle.While Bitcoin and digital assets were not a focus in the 2020 campaign, they are growing in importance this time around. Former President Donald Trump took an early stance, pledging support for digital assets in the United States and speaking at a Bitcoin conference in August. While Kamala Harris has been less vocal about her support for digital assets, the current vice president said at a fundraiser on Sunday that she would support innovation in digital assets.

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