Coinbase analysts observe renewed stability in the crypto market after week of heightened volatility

Quick Take

  • The crypto market is showing increased stability after a week of heightened volatility, according to Coinbase analysts.
  • Following significant liquidations and a broader exodus from risk assets, the market’s dynamics will be influenced by the Fed’s stance on interest rates and the upcoming U.S. elections, they added.

The cryptocurrency market is showing improved stability and a more balanced dynamic between buying and selling pressures after a week marked by significant volatility, according to analysts at Coinbase.

This equilibrium largely depends on how investors react to upcoming macroeconomic developments and how these factors shape market sentiment.

"We believe the market is now directionally more balanced as investors digest numerous potential macro catalysts. This lighter directional positioning is evident in the proportional bid/ask depths of Coinbase’s BTC/USD order book," Coinbase analysts David Duong and David Han said.

The analysts noted that earlier this week saw significant volatility, marked by over $700 million in long liquidations during Tuesday's sell-off after geopolitical tensions escalated in the Middle East when Iran fired more than 180 missiles at Israel in retaliation for the latter's military actions in Lebanon.

"Bitcoin's decline on Tuesday resulted in the highest weekly level of liquidations since early August," the Coinbase analysts said in their Friday report. The analysts were referring to an early August liquidation event that saw bitcoin drop from $70,000 to below $50,000. This sell-off started in global markets after an unwind in the yen carry trade caused by a hike in interest rates by the Bank of Japan.

Bitcoin futures funding rate flattens

The Coinbase analysts stressed that since Tuesday's sell-off, the reduced leverage in the market has led to annualized bitcoin and ether perpetual futures funding rates dropping from a two-month high of 10-11% to 5-7%, thus contributing to a stabilized market condition.

The analysts noted investors could now adopt a "wait and see" approach regarding the scale and timing of monetary easing by the U.S. Federal Reserve. They highlighted the negative reaction of the cryptocurrency market to Fed Chair Jerome Powell's somewhat hawkish remarks earlier this week. Speaking at a conference of the National Association for Business Economics in Nashville, Tennessee, Powell suggested that while additional interest rate cuts are probable, they would be implemented cautiously to maintain the health of the economy.

The Coinbase analysts anticipate that U.S. monetary policy will continue to be a key focus, particularly as labor data—such as job openings, nonfarm payrolls, and unemployment—lacks clarity for market direction. They also noted that recent port strikes on the U.S. East and Gulf coasts, along with damage from Hurricane Helene in the Southeast, add to the current uncertainty. However, they cite that the upcoming U.S. presidential elections will be the most influential factor across all markets, including cryptocurrencies.

"Both political parties have shown supportive rhetoric toward cryptocurrencies, suggesting a more favorable regulatory environment could emerge next year, regardless of who wins the White House," the analysts added.

The CME FedWatch tool indicates a 92.5% probability of a 25 basis-point cut by the Fed next month and a 7.5% probability of a 50 basis-point cut at the upcoming Federal Open Market Committee meeting on Nov. 7. Generally, rate cuts lead to increased market liquidity, encouraging investors to seek higher returns in risk-on assets like bitcoin and ether.


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About Author

Brian McGleenon is a UK-based markets reporter for The Block. He has worked as a financial journalist and producer for multiple news outlets over the years, such as Fuji Television, The Independent, Yahoo Finance, The Evening Standard, and The Daily Express. Brian is also a screenwriter and producer with one feature film produced and one in development with Northern Ireland Screen. Apart from web3 and cryptocurrency developments, he is also interested in geopolitics, environmental issues, artificial intelligence, and longevity research. Get in touch via email [email protected].

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