The world's largest cryptocurrency has been languishing around $ 47,000, well below early November highs of nearly $ 69,000.
The malaise surrounding Bitcoin runs much deeper than its price.
The world's largest cryptocurrency has been languishing around $ 47,000, well below early November highs of nearly $ 69,000. A look under the hood helps explain why: trading volumes have been depleted, open futures interest is sinking, and the number of active addresses has stalled.
Taken together, the data paints a picture of the animal spirits decline after Bitcoin peaked following the fall launch of the first U.S. futures-tracking exchange-traded funds. Item that was once trusted in the cryptocurrency markets, they have yet to significantly resurface even after a 33% decline. Meanwhile, after billions of dollars in leveraged positions were eliminated in last month's sudden crisis, new investors have yet to fill the gap.
"There was a lot of leverage in the system in May and then in the run-up to November," said Jim Greco, managing director of Radkl, a crypto trading company. "There could be a lot of people who have vanished and need to be replaced by new capital."
Sunken volume
Trading activity in Bitcoin has slowed as enthusiasm has waned. After trending down for months, volume on exchanges registered just $ 4.8 billion on Tuesday, Kaiko data compiled by Messari shows. That's less than the $ 13.1 billion a year earlier, and well below the one-year average of about $ 9.2 billion.
![A graph of Bitcoin trading volume measured by total value in US dollars](https://i1.wp.com/www.aljazeera.com/wp-content/uploads/2022/01/382570529.jpg?w=770&resize=770%2C487&ssl=1)
The volume has not exceeded $ 10 billion since December 4, when the price of Bitcoin plunged more than 20% in a matter of minutes in a display of the currency's notorious weekend volatility. About $ 2.4 billion of crypto exposure, both long and short, was liquidated during the crash, according to data from Coinglass.com.
"We saw a number of US funds, prop stores and hedge funds reverting to risk basically in the latter hours of the year, but this year what we've seen is volumes are relatively down compared to the beginning of last month." . said Aya Kantorovich, FalconX's head of institutional coverage. "I think what we're seeing is still this question: 'Are we still risk-free or risk-free?'"
Sizzling Futures
The futures market tells a similar story. After rising to an all-time high of $ 17.4 billion at the end of October, open interest in Bitcoin futures contracts on the Chicago Mercantile Exchange is now roughly $ 10.6 billion, a drop of 39%.
Fueling the run-up was the anticipation of the first US Bitcoin futures ETF, which debuted in mid-October as one of the most traded funds in history. However, the enthusiasm quickly faded: After attracting more than $ 1 billion in just two days, assets under management in the ProShares Bitcoin Strategy ETF (BITO ticker) amount to $ 1.2 billion.
"The fund's launch is strongly correlated with increased open interest from CME as AUM rose rapidly in the first week after launch," wrote Sam Doctor, BitOoda's chief strategy officer and head of research, in a note. Open interest "recently fell back to pre-ETF levels in the last week of December, although we expect OI to rise again coming out of the holidays."
Missing addresses
Amid the unrest, the growth of active addresses, an indicator of business activity, has also stalled. The count currently stands at about 971,000, down from 1.2 million a year ago, CoinMetrics data compiled by Messari shows.
For Kantorovich, that could set the stage for a short, sharp liquidity crunch similar to the sudden crisis in December.
![A graph showing the decreasing growth of active Bitcoin addresses, which serve as an indicator of trading activity.](https://i3.wp.com/www.aljazeera.com/wp-content/uploads/2022/01/382570690.jpg?w=770&resize=770%2C488&ssl=1)
โThe less active addresses you have could mean more assets stored in cold storage. The less tradable Bitcoin, the more volatility can be expected on exchanges as liquidity in order books decreases, โsaid Kantorovich. "I think you could see a very quick and very brief crash that disappears open interest in the market very quickly, similar to what we saw in December."