Bitcoin remains range bound in the highs of $30K to $40K. The number one cryptocurrency by market cap has seen a decrease in its volatility as several factors are contributing to the slowdown across the sector.
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At the time of writing, Bitcoin (BTC) is trading at $40,500 with a loss of 6% in the last 24 hours and a gain of 1% over the past week.
Trading firm QCP Capital believes that Bitcoin is trading in a larger range as the region has recovered around its current levels. The company claims that there are two main reasons behind the recent price movement of BTC.
In addition to the US Federal Reserve (FED) hinting at an aggressive monetary policy, there are expectations that Bitcoin and Ethereum will return to the important supports at $30,000 and $2,500, respectively. This forecast was created by the previous BitMEX CEO Arthur Hayes’ latest post, “The Q Trap.”
In the options markets, traders are bracing for a possible dip as QCP Capital reports “massive May and June call sell-offs, causing BTC and ETH risk reversal.” These levels decreased from minus 6% to minus 10%.
On the contrary, the demand for BTC and ETH has increased. In other words, traders seem to hedge against the upcoming crash by buying put options. If the price collapses, they will be able to benefit.
Ethereum saw the largest increase in demand for sell calls. QCP Capital attributed this to the “merger” delay. The event is set to bring together the Ethereum implementation layer and its consensus layer and make ETH 2.0 fully operational.
Bitcoin Finds Bottom With Stablecoin Craze
QCP Capital believes that the recent bitcoin price movement with low volatility could also be the result of the popularization of algorithmic stablecoins. These digital assets have been in the crypto space for many years, but Terra’s stable terrestrial vaults have managed to give them new life.
The demand for floor cabinets has increased due to users wanting to take advantage of the 19% annualized return (APY) offered by the Anchor protocol. Other projects began to imitate this model to create what the trading company called a “soft floor in the market”. QCP Capital added:
We mentioned in a previous post that the precedent set by the Luna Foundation Guard (LFG) is going to spread and it happened quickly with a flurry of announcements from FRAX, NEAR and TRON (…). Similar to how LFG bought BTC and AVAX, these algorithm stables will build their vaults in the majors and provide physical support in the marketplace from their purchase.
Short-term satisfaction in the market can be translated into long-term pressure. The trading firm claims that these digital assets could become a systemic risk to the sector.
If the entities managing these stablecoins buy BTC or ETH to maintain their asset peg, there is a possibility that the de-pegging scenario will increase selling pressure in the market. If stablecoins are at risk of volatility, the entities will sell their assets to try to maintain the correlation.
In any case, QCP Capital and others question the long-term sustainability of algorithmic stablecoins. UST, the original Terra stablecoin, has been battle-tested, but many are wondering if it will be able to keep its users with the increasing competition.
Related reading | Why ‘boring’ bitcoin can be a good thing
In the meantime, with expectations of the May/June crash increasing and stablecoins proliferating, Bitcoin appears poised to stay range bound with short-term price action to the downside. According to material indices, the price of BTC will seek liquidity of around $37,000.
#FireCharts Shows about 100 million dollars in # bitcoin Bid liquidity is between here and 37.5 thousand dollars. Expect it to be full, but watch to see if #BTCUSDT Liquidity goes to the active buy zone or buy zone goes to the orders in binance order book.https://t.co/26BLOFwenL pic.twitter.com/NdAGc48yfY
– Material Indicators (MI_Algos) April 22 2022