Bitcoin Santa Claus rally unlikely, according to on-chain and derivatives data

As the coldest days of the crypto winter set in, investors’ speculative interest in the crypto market has fallen to pre-2021 levels, dampening the chance of a significant directional price movement. However, there is a possibility of a bear market rally similar to the uptrend from July to August 2022.

The market enters a state of limbo

The FTX implosion affected over 5 million users globally and adversely affected many crypto companies exposed to it. The industry is currently in a recovery mode and Cumberland, a US-based crypto market broker, recently echoed this narrative in a tweet. The company noted that “dozens of crypto companies are either severely curtailed or out of business, and the future of the industry is as unclear as ever.”

Data suggests that building a sustainable bullish move will be challenging because the market is pushed back into a regime of low liquidity and volatility.

Crypto analytics firm Glassnode reported “depressing” futures volumes for Bitcoin and Ethereum, tracking back to pre-2021 levels when Bitcoin’s price crossed $20,000 for the first time.

The open interest volume of Bitcoin and Ethereum futures has fallen significantly towards the levels of mid-2022, which was after the collapse of Luna-UST. The BTC and ETH leverage ratio indicator, which measures the ratio of open interest volume, is currently down to 2.5% and 3.1%.

Bitcoin spot trading volume on crypto exchanges has also fallen significantly towards 2020 lows. Data from Blockchain.com shows that the 7-day moving average of exchange trading volume has fallen to $67 million, compared to $1.4 billion near the peak of the 2021 bull market.

Due to low liquidity and a cloud of uncertainty over the market, there is a strong possibility that the bear market is far from over. Bitcoin’s realized volatility has also fallen towards two-year lows of 22% (1 week) and 28% (2 weeks).

Going forward, volatility may remain dull, with more sideways or slow downside price action. However, there is still a chance for a short-term rally in the bear market.

Is A Bitcoin Price Pump And Dump In Play?

November’s FTX-induced shakeout was similar to the LUNA-UST implosion seen in June, and these events typically cause panic selling and make an asset attractive to bargain hunters looking to buy into a capitulation.

Consequently, a short-term bull rally takes effect that could last a few days or weeks, which is exactly what happened in July to August when Bitcoin’s price rose toward $25,000. Based on the November shakeout levels and signs of institutional buying, Bitcoin may undergo a similar bear market rally.

The realized profit and loss value for long-term owners fell to an all-time low, indicating possible oversold conditions. The long-term owner realized that losses had reached comparable levels only at the bottom of 2015 and 2018.

In addition, the futures market is currently in backwardation, meaning that there are more open short positions than long ones. Throughout Bitcoin’s history, similar conditions have only lasted for short periods and ended up in a short-term pump to push the short orders.

The accumulation trend among institutions and whales, which had been negative for most of this year, turned positive in mid-November. An increase in the holdings of these investor groups provided a tailwind for the bear market rally in the third quarter of this year.

CoinShares reported that institutional Bitcoin investment vehicles saw inflows totaling $108 million following the FTX implosion, with $17 million added last week. In particular, today’s inflow is significantly lower than weeks 25 and 35 this year, which caused the rally towards $25,000.

On-chain data from Glassnode also shows positive accumulation among Bitcoin whales, identified as addresses holding greater than or equal to 100 BTC (worth around $1.7 million at current prices).

While stocks of these whales have risen from their annual lows in a similar fashion from July to August, the BTC price has yet to reflect this positive addition.

Technically, the support and resistance levels of the previous trading area between $18,700 and $22,000 could form the local highs of the current rally. Conversely, if BTC builds support above $22,000, the bear market rally could become more meaningful with a continued uptrend.