Cryptocurrency Market Trends: Downturn and Influence of Macroeconomic Factors

Cryptocurrency Market Update: Trends and Insights

The cryptocurrency market has been experiencing a notable downturn, underperforming compared to other risk assets as demand weakens. According to a recent research report from Citi, this trend is likely to persist, with the market expected to remain closely correlated with equities in the near future. The analysis, conducted by analysts led by David Glass, highlights that both Bitcoin and Ethereum (ETH) spot exchange-traded funds (ETFs) have encountered significant outflows.

In their report, the analysts observed that:

• ETFs have recorded net outflows, indicating a lack of investor confidence.
• Layer 1 activity has either stagnated or declined.
• Funding rates, which reflect the difference between perpetual futures prices and the spot prices of digital assets, remain exceptionally low.

A positive funding rate typically suggests that perpetual contracts are trading at a premium to the spot price, reflecting increased demand for bullish positions. However, the current scenario indicates otherwise.

Looking ahead, Citi anticipates that the cryptocurrency market will continue to be influenced by broader macroeconomic factors, especially as significant reports, such as today’s Nonfarm Payrolls data, are released. The recent weakness in digital assets has led to a decrease in energy consumption among Bitcoin (BTC) miners, which has resulted in “weaker production cost model outputs,” as stated in the report.

Interestingly, despite the prevailing market challenges, the market capitalization of stablecoins has shown resilience, continuing to grow and seemingly unaffected by the recent downturn. Additionally, the Bitcoin hashrate, which serves as a proxy for competition within the mining industry and the associated mining difficulty, is currently at the high end of its recent range. This metric refers to the total computational power dedicated to mining and processing transactions on proof-of-work blockchains.

Furthermore, activity on the Ethereum blockchain has been trending downward, while the Bitcoin network has also shown signs of stagnation. This decline in activity might indicate a broader trend within the cryptocurrency ecosystem.

In a related report released on the same day, rival Wall Street bank JPMorgan echoed similar sentiments. They stated that the cryptocurrency ecosystem currently lacks significant catalysts in the short term, and as a result, digital assets are likely to be increasingly sensitive to macroeconomic factors.