The crypto landscape is experiencing what experts are calling a “random walk” – a term that signals increased unpredictability and risk.
What Happened: This comes as global markets grapple with the fallout from recent monetary policy shifts, particularly the Bank of Japan’s (BoJ) unexpected rate hike.
According to an analysis by BloFin Academy, the crypto market’s usual support and resistance levels, typically maintained by market makers’ hedging activities, have nearly collapsed, resulting in “a ‘random walk’ market where risk control becomes even more critical,” the analysis states.
This volatility is not isolated to the crypto sphere.
The U.S. equity market is experiencing a “substantial buildup of negative gamma,” further complicating the financial landscape.
The interplay between traditional and digital markets has never been more evident, with the BoJ’s actions sending shockwaves across asset classes.
BloFin Academy’s analysis emphasizes the importance of monitoring the rate gap between the Federal Reserve and the BoJ.
“The magnitude and speed of rate gap changes between the Fed and BoJ is crucial,” the analysts note, suggesting that rapid narrowing of this gap could lead to further asset price declines.
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Why It Matters: Despite the turbulence, there’s a silver lining for crypto enthusiasts.
The analysis indicates that “crypto options traders may believe the impact of unwinding carry trade will not last long.”
However, it cautions against premature optimism, stating emphatically, “It must be affirmed that the price fluctuation is not over yet; be cautious when catching a falling knife.”
The crypto market’s behavior remains “logical and aligned with investor expectations,” according to BloFin.
The term structure’s jump to backwardation and the normalization of the medium to long-term butterfly Index suggest that while short-term concerns persist, investors haven’t priced in significant tail risks for major cryptocurrencies like Bitcoin BTC/USD and Ethereum ETH/USD.
What’s Next: As the crypto community navigates these choppy waters, all eyes are turning to Benzinga’s Future of Digital Assets event on Nov. 19.
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