The momentum on the back of a relief rally on Monday in the cryptocurrency market appears to have slowed to a stall overnight and a market-wide pullback is looming as fears of further fallout from the recent negative developments continues to fuel caution and broad risk-off sentiment.
This morning many Australia-based CFD providers have alerted customers about temporary margin changes on cryptocurrency instruments due to the “current market conditions” after a relative pickup in short (sell) positions as experienced traders move to get ahead of such pullbacks.
Many crypto exchanges allow traders to trade on a margin account (using leverage), which means that they can use a relatively small amount of money upfront to hold large amounts of digital assets. Although the leverage magnifies profits if the price goes in the favorable direction (depending on short or long orders), it leaves traders in a much more vulnerable position if price goes in the wrong direction.
Brokers and exchanges usually warn customers about tightened margin rules when they brace for “elevated volatility” in the markets.
The entire market is drifting down due to subdued buy orders as technicals and fundamentals indicate deeper market-wide losses shouldn’t be ruled out in the coming days.
As of press time, Bitcoin (BTC) is changing virtual hands at US $37,300, Ether (ETH) at US $2,650, ripple (XRP) at US $0.95, Binance Coin (BNB) US $348, cardano (ADA) at US $1.65, Dogecoin (DOGE) at US $0.32, ChainLink (Link) at US $31.36, UniSwap (UNI) at US $26.38, Polkadot (DOT) at US $22.43 and Stellar (XML) at US $0.41.
The current downward drift could be just a little taste of what has to come as risk averse corporate investors bank profits and jump off the sinking ship, leaving retail traders holding the bag.
For example, during this week much of the bounce , as seen in the small size of transactions, has been driven by retail traders and speculators who are continuing the high level of engagement that began since early 2021, and new entrants who may be hoping to jump in what they might see a a dip (buying opportunity).
Light or thin volume are also used by traders, even large institutional entities for a tactical trading strategy to influence market direction and make profit in the short-term volatility. The strategy is to trade huge volumes in an illiquid or subdued market to move the market in the desired direction, which is usually assisted by other traders in euphoria who think the market is recovering.
If evil has one power, it is the power of illusion to mask reality. And in this case, it is the lack of any good news or positive outlook to fundamentally support high prices.
While in news over the past 24 hours were Iran’s ban on the energy-intensive mining of cryptocurrencies which caused major power blackouts in some cities. While mining is recognised as a legitimate industry in Iran, no clear regulations govern the wider cryptocurrency space that has attracted many Iranians due to the US sanctions. It is estimated up to 10% of the global crypto mining takes place in Iran, especially because low power prices.
From Australia’s AUSTRAC chief executive Nicole Rose answers to the Senate it is understood that new regulatory framework could be coming to require exchanges and facilitators to share information about cryptocurrency holders and traders.