Market Wrap: Bitcoin Rises to $32K, Outperforming Altcoins

Bitcoin (BTC) is showing signs of life following nine consecutive weeks of losses. It appears that extreme bearish sentiment and oversold signals have encouraged some buyers to return from the sidelines.

The bulk of BTC's relief bounce was seen on Sunday when the cryptocurrency rose above $30,000. The weekend price jump was bitcoin's largest daily return since March, with the price increasing by 7.8%, according to Arcane Research.

Meanwhile, most alternative cryptos (altcoins) underperformed bitcoin on Tuesday, which suggests traders are still not comfortable with taking on additional risk. Bitcoin's market cap relative to the total crypto market cap ticked higher over the past three days after breaking above a yearlong downtrend on May 13. Typically, alts underperform BTC during down markets because of their higher risk profile.

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Still, some altcoins rallied on Tuesday as bearish sentiment began to wane. For example, Cardano's ADA token and Axie Infinity's AXS token rose by as much as 15% over the past 24 hours, compared with a 4% rise in BTC over the same period.

In contrast, Avalanche's AVAX token declined by 3% on Tuesday, and Monero's XMR token was down by 4%. Overall, trading conditions remain choppy in cryptos and stocks despite the current pause in risk-off conditions.

Latest prices

●Bitcoin (BTC): $31,664, +3.46%

●Ether (ETH): $1,938, +1.16%

●S&P 500 daily close: 4,132, −0.63%

●Gold: $1,840 per troy ounce, −0.64%

●Ten-year Treasury yield daily close: 2.84%

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.

Short squeeze

On Sunday, BTC's price spike triggered an uptick in short liquidations, which was the largest since May 11. That could reflect a short squeeze, which happens when traders who are short BTC scramble to close out of their positions when the price unexpectedly rises.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism because of a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.

Oversold bounce

Bitcoin and other cryptos appear to be deeply oversold, according to some indicators.

The chart below shows MRB Partners' cyclical momentum indicator, which is the most oversold since the 2018 crypto bear market. That could point to a short-term bounce across cryptos.

Still, momentum indicators can remain in oversold territory while prices are in a downtrend. At times, a cross above oversold thresholds can confirm a bullish shift in price, similar to what occurred at the end of previous bear markets. That could take a few weeks to develop.

Some analysts are skeptical about the latest price bounce. "While it is plausible that BTC can continue its reversal after posting its first green weekly candle in 10 weeks, the persistent macro headwinds make us cautious in the immediate term," FundStrat wrote in an email.

MRB published a report last week that discussed several macroeconomic headwinds that could weigh on bitcoin's price despite oversold readings. For example, BTC's sell-off since last November coincided with tighter liquidity conditions, a decline in global negative yielding debt and lower amounts of cash held in money market funds and savings deposits – a complete reversal of the boom years for cryptos and stocks.

Altcoin roundup

• ADA pumps: The Cardano blockchain’s native token surged on Tuesday as other major altcoins jumped in tandem with bitcoin. Fundamental catalysts include a rise in the issuance of native assets on the network and the upcoming Vasil hard fork, which is a network upgrade expected in June that would increase scaling capabilities. The upside looks limited for a continued recovery, as ADA faces heavy resistance at 80 cents. Read more here.
• Record inflows for Algorand funds: Investment funds that manage ALGO, the Algorand network’s token, racked up $20 million in inflows during the week ended on May 27, CoinShares reported. The record weekly fund inflow was likely triggered by new product launches for the decentralized finance (DeFi) protocol that scored a partnership deal with FIFA, soccer's world governing body, this month. Multi-asset funds, funds that manage more than one cryptocurrency, extended their streak of inflows, totaling $191 million in inflows since the start of the year. Read more here.
• New LUNA rises after a big fall: Terra's new LUNA token surged up to 40% in 24 hours after it was listed on crypto exchange Binance, attracting more than $850 million in trade volume. That came after the tokens dropped 80% in the wake of their launch on Saturday, showing that trading with LUNA is highly speculative as traders gauge Terra's future. The new luna tokens are part of the efforts to revive the Terra blockchain after the collapse of its UST stablecoin and its twin token, which was rebranded to luna classic (LUNC). Read more here.

Relevant insight

• Morgan Stanley Says Record Crypto Venture Capital Investment to Slow: Deal activity peaked in December and could fall as much as 50% by year end, the bank said.
• Fidelity Digital Assets Plans to Double Staff This Year: The firm is planning to add 110 employees in tech roles, including engineers and developers with blockchain experience.
• Fireblocks Hires Former Bank of England Fintech Chief to Lead CBDC Efforts: Varun Paul will also engage with market infrastructure bodies to explore the benefits of supporting digital assets and participating in DeFi.
• UK Government Proposes Stablecoin Safeguards After Terra Collapse: The measure would give the Bank of England more power over failed stablecoin issuers.
• CoinShares' Losses From Terra's Slide Hit $21.4M: Liquidating the digital asset firm's position was a "humbling lesson," the CEO said.
• Singapore to Look at Crypto Use Cases With DBS, JPMorgan and Marketnode: In the first stage of the project, Singapore's central bank explores DeFi applications in wholesale funding markets.
• Terra’s Mirror Protocol Allegedly Suffers New Exploit: Community users are raising the alarm about a possible bug in the LUNC pricing oracles.
• Polkadot’s Moonbeam Adds Liquid Staking Giant Lido: The integration was facilitated by staking specialist MixBytes.

Other markets

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

Biggest Gainers

Asset Ticker Returns DACS Sector Cardano ADA +12.8% Smart Contract Platform Stellar XLM +7.8% Smart Contract Platform Internet Computer ICP +6.4% Computing

Biggest Losers

Asset Ticker Returns DACS Sector Ethereum Classic ETC −2.0% Smart Contract Platform Cosmos ATOM −0.5% Smart Contract Platform EOS EOS −0.3% 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.