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

With the onset of the coldest days of the crypto winter, investors’ speculative interest in the crypto market has fallen to pre-2021 levels, reducing the chance of substantial directional price movement. However, there is a possibility of an increase in the bear market similar to the uptrend from July to August 2022.

The market is entering a state of limbo

The FTX implosion affected more than 5 million users worldwide and adversely affected a number of crypto companies exposed to it. The industry is currently in recovery mode, as US stockbroker Cumberland reiterated in a recent tweet. Firm he remarked that “dozens of crypto companies are either severely curtailed or going out of business, and the future of the industry is as cloudy as ever.”

The data suggests that building a sustainable bull run will be challenging as the market is pushed back to a regime of low liquidity and volatility.

Crypto analytics company Glassnode has reported “depressed” volumes for Bitcoin (BTC) and Ether (ETH) futures, which have returned to pre-2021 levels when the price of Bitcoin first broke $20,000.

Bitcoin (orange) and Ether (blue) futures trading volume. Source: Glassnode

Open interest volume in Bitcoin and Ether futures fell significantly to mid-2022 levels, which was after the Luna-UST collapse. The BTC and ETH leverage ratio indicator, which measures the ratio between open interest volume, has currently fallen to 2.5% and 3.1% respectively.

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Bitcoin spot trading volumes on crypto exchanges also fell sharply to 2020 lows. Data from shows that the exchange’s seven-day moving average trading volume fell to $67 million, compared to $1.4 billion near the peak of the 2021 bull market .

Trading volume on the spot bitcoin exchange. Source:

With low liquidity and a cloud of uncertainty in the market, there is a strong possibility that the bear market is far from over. Bitcoin’s realized volatility also fell to two-year lows of 22% (one week) and 28% (two weeks).

Moving forward, volatility may remain subdued, with more sideways or slower price action. However, there is still a chance for a short-term bear market recovery.

Is a Bitcoin Price Pump and Dump at Play?

November’s FTX-induced shocks were similar to June’s LUNA-UST implosion, and these events typically trigger panic selling, making the asset attractive to bargain hunters looking to buy into capitulation.

This will result in a short-term bull rally that can last for days or weeks, which is exactly what happened in July-August when the price of Bitcoin jumped to $25,000. Based on the November shakeup and signs of institutional buying, Bitcoin may be going through a similar bear market rally.

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Long-term holders’ realized gains and losses fell to historic lows, indicating possible oversold conditions. Long-term holder realized losses reached a comparable level only in 2015 and 2018.

Profit and loss by return bands. Source: Glassnode

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

BTC futures market swaps vs. 3 month rolling basis. Source: Glassnode

The trend of accumulation between institutions and whales, which was negative for most of this year, turned positive in mid-November. The increase in holdings of these cohorts of investors provided the impetus for the recovery of the bear market 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. Notably, the current inflows are significantly lower than the 25th and 35th weeks of this year, which caused an uptrend towards $25,000.

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Weekly asset flow metrics from institutional BTC investment products. Source: CoinShares

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

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

Holding BTC addresses with greater than or equal to 100 BTC. Source: Glassnode

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