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CCData's latest blog offers an insightful analysis of the 2023 digital asset market, highlighting the key factors driving the recent rally, the state of the market, the top-performing assets, and trends in exchange volumes. Utilising their award-winning data, the blog is an essential read for those seeking to understand the current dynamics and developments in the cryptocurrency industry.
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Cryptocurrency markets have seen a surprisingly positive start to 2023, with BTC and ETH up 25.1% and 26.6% respectively in the first 18 days of the year. There are a number of factors that have contributed to this upward move, which we outline below:
First, utilising CCData’s historical derivatives data and aggregated data streams, we are able to illustrate Bitcoin’s Price against BTC Open Interest, showcasing how a rally in price can lead to a decrease in open interest as short positions are liquidated.
Also known as a short squeeze, a large number of short positions can accelerate price rallies as shorters must purchase back the assets they sold to cover their shorts, creating buyside pressure and a ‘cycle’ of more short liquidations followed by higher prices.
As displayed below, Open Interest fell 9.47% from its annual high of 7.80bn, as of the 16th of January.
It is worth noting that the amount of short interest is unsurprising at this stage of the cycle. Cycle tops usually involve incredible bullishness by market participants. Conversely, market bottoms are marked by calls for lower prices. This rally would suggest that we are at the beginning of the end in this bear market, and while prices may retrace, the move upside is a positive sign for market participants.
Second, the macroeconomic environment seems to be improving, as inflation in the United States has now seen 6 months of consecutive declines, falling from 9.1% in June 2022 to 6.5% in December. Inflation in the European Union has also fallen as of late — down to 9.2% in December from 10.1% the month prior and beating the market expectation of 9.7%.
This suggests the Federal Reserve and other central banks will likely decelerate quantitative tightening in 2023, a potential tailwind for investors. We note that the macro outlook remains negative, but we are seeing the beginning of a trend reversal that could act as a catalyst in the future.
Third, crypto markets saw historically low volatility in the last quarter of 2022, with BTC recording an average 30d volatility of 53.3%. In the last five years, the average 30d volatility of Bitcoin per quarter has only been lower in Q3 and Q4 of 2020, suggesting that a return of volatility in the market is warranted.
Fourth, ownership distribution data suggests that the percentage of long-term holders of BTC is at an all-time high. One would expect this to occur following periods of consolidation where long-term holders can accumulate BTC at low prices. On the other hand, the percentage of short-term holders of BTC was at a multi-year low in October 2022, suggesting a mean reversal is due with short-term traders likely to enter more BTC positions in the short to medium term.
There is uncertainty whether the rally over the last two weeks will be sustained, as the crypto industry is still facing key headwinds, mainly in the form of contagion from the fall of FTX.
Digital Currency Group (DCG) and Genesis Trading, for example, look due for a restructuring after it was recently revealed that Genesis owes creditors up to $3bn, with the crypto conglomerate considering offloading other businesses and VC stakes to support the lender. There is also speculation that Genesis will be filing for potential bankruptcy this week. There may also be other similar hidden risks from the fall of FTX that may have not yet come to light, not to mention the remaining macroeconomic challenges (sustained higher rates, continued war in Ukraine). Investors should thus be wary of FOMO-ing into this rally and should remain cautious in their outlook for the next year.
Having said this, the rally is a welcomed move after a disastrous 2022. Below, we dive deeper into other areas of the market, with a particular focus on derivatives data.
Most of the top 100 coins have benefited from the recent rally and recorded positive returns, with minor exceptions such as Bitfinex’s LEO token, which has recorded a negative 4.26% return so far this year (up to 18th January).
CCData's historical data shows that layer-1 blockchains have led the market, with Solana (SOL) recording a 109% return to $20.8 as of the 18th of January, as it recovers from the significant decline it suffered following the FTX collapse. SOL saw a decline from a peak of $259.95 recorded on the 6th of November 2021, to a bottom of $8.014 recorded on the 29th of December 2022 (a decline of 96.9%). It traded at $20.8 as of the 18th of January.
Aptos (APT) was another layer-1 Blockchain that witnessed significant gains, recording a return of 121%. The price spike that was a by-product of the market bull run was also influenced by PankcakeSwap’s plans of continuing their multichain deployment on Aptos. Currently, PankcakeSwap represents more than 50% of TVL on Aptos. Layer 2s also had their own share of positive returns with OP and MATIC recording 81.7% and 24.0%, respectively.
Gala Games’ GALA token has been the highest-returning asset this year, recording returns of 168%. The spike in price came after a series of announcements that included their partnership with Dwayne Johnson (known as The Rock), their plans to expand to mobile gaming and the launch of their Pay-by-Burn program which burns GALA tokens for every purchase made on the Gala platform. However, the tweet announcing the partnership with the rock was soon deleted leading the price to temporarily plummet. The significant price action could also be attributed to heavy short positions liquidations, as mentioned earlier.
Liquid Staking Derivatives (LSD) tokens also saw a significant move upwards, with Lido’s LDO rising 108%, while Rocket Pool’s RPL saw a 60.3% gain. The rise has been fueled by the bullish narrative of Ethereum’s upcoming Shanghai upgrade; which is meant to avail withdrawals of Staked ETH.
Finally, BTC and ETH recorded returns of 25.1% to $20,678 and 26.6% to $1,512 respectively. The following table recaps the return of the mentioned cryptocurrencies up to the 18th of January:
Using our granular derivatives data, we examined digital asset open interest and funding rate metrics to track market movements and measure the flow of money into the crypto futures market.
For example, Bitcoin dominated Open Interest, recording an increase of 5.09% from the 1st of January till the 18th, followed by Ethereum which recorded an increase of 14.29%. Ripple’s XRP and Cardano’s ADA also saw a significant increase in Open Interest — with a 51.6% and 69.4% rise, respectively. XRP’s Open Interest also increased, in line with the progress made on its case against the SEC, with the last hearing on the 16th resulting in a potentially positive outcome for Ripple.
Funding rates were mostly positive during the first weeks of 2023 signifying the bullish sentiment of traders trying to capture profits in this current rally. Analysing the funding rate of 8 exchanges, we can see that MATIC has the highest positive funding rate, followed by Ethereum, with both capitalising on the narrative of the upcoming ETH upgrade, which could benefit the Ethereum ecosystem as well as Layer-2 chains due to the potential unlocks of ETH from staking services.
The move that saw Bitcoin record its first seven consecutive green candles since March 2022 was largely driven by derivatives trading volume rather than spot accumulation. The 7-day average derivatives trading volume has increased 176% from the start of the year, while average spot trading volume has risen 144% during the same period.
For additional insight into derivative and spot exchange volumes, make sure to check out CCData’s monthly Exchange Review.
The price action of Bitcoin led to short liquidations worth $89.4mn on January 14, the highest level recorded since October 2022. The impact of liquidations on open interest and Bitcoin’s price can be seen quite evidently. The upward trending price action further fueled the entry of more speculators, with open interest falling 10.5% to $6.91bn on Jan 14 from a high of $7.72bn the previous day.
CCData’s derivatives data also features standardised instrument mapping, allowing for streamlined comparison of futures instruments across different markets.
Binance continues to be the dominant marketplace, with 61.1% of derivatives trading and 55.0% of spot trading in January (up to 16th January) taking place on the exchange. OKX and Bybit were the next largest derivatives platforms with a market share of 14.6% and 14.1% respectively.
The recent concerns over the solvency of Huobi have led to a sell-off of assets on the platform, shooting up its spot trading market share to second place at 7.41%, followed by OKX with a dominance of 4.53%. It is also noteworthy that the recent rise in KRW trading volume, which has now increased its market share for the fourth consecutive month to 4.62%, has led to a spike in trading activity on Korean exchanges. As a result, Upbit recorded its largest market share since May 2018, making it the fourth largest spot exchange with a dominance of 3.79%.
In conclusion, the cryptocurrency market has witnessed a strong start to 2023, with a number of factors contributing to the upward move. Using CCData’s enhanced derivatives data offering, we have shown how investors can track market activity and short positions, identify short squeezes, and understand trends in open interest to monitor market activity and identify key trends and developments.
This report features data extracted from CCData’s new and enhanced Derivatives Data product. CCData’s enhanced derivatives data provides vital real-time, high-quality data needed to accurately monitor market movements with tick-level trade history available across all covered instruments and markets, at the maximum granularity provided by each exchange.
CCData readers can now trial our derivatives data directly through our API here.
Disclaimer: Please note that the content of this blog post was created prior to our company's rebranding from CryptoCompare to CCData.
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