Bitcoin steadies, altcoins jump in liquidity-driven relief rally

The crypto market staged a recovery on Monday with bitcoin rising by 2.1% since midnight UTC and ether ($ETH) adding 3.1%. Stronger gains occurred in the altcoin market, with tokens such as chiliz (CHZ), and optimism notching advances of more than 6%.

Despite the improvement in sentiment, investors remained uneasy as the conflict with Iran enters a fifth week. While Pakistan expressed readiness to host "meaningful" peace talks, the markets aren't buying it yet. Brent crude jumped to $108 per barrel over the weekend, signaling deep skepticism that a resolution is near. It was trading in the low $70s before the start of hostilities.

U.S. stock index futures responded well to Pakistan's comments: Nasdaq 100 futures and S&P 500 futures both advanced 0.25%, and the dollar index (DXY) was little changed at 100.2 points.

The crypto market remains in a bearish trend on higher time frames, characterized by a series of lower highs and lower lows dating back to October. Bitcoin has remained in the same trading range since early February, failing to break above $75,000 to the upside or below $62,800 to the downside.

Derivatives positioning

• Growth in bitcoin futures open interest (OI) has stalled since hitting a near two-month high of 748.65 $BTC on Saturday. Near-zero perpetual funding rates and negative 24-hour cumulative volume delta (CVD) suggest a bias for bearish, short positions.
• $BTC OI declined notably during the spot price bounce from the Asian-session low of around $65,000. It shows that the rally is largely spot-driven and has yet to win the backing of leveraged traders.
• On Bittfinex, the number of $BTC/USD longs hit the highest since November 2023. Historically, this has been a contrary indicator, coinciding with price selloffs.
• OI in most major tokens, including XRP, $ETH, DOGE and SOL, has held largely flat over 24 hours.
• AVAX and LTC stand out with double-digit percentage gains in futures OI, a sign of capital inflows. Most inflows, however, seem tied to bearish bets, as indicated by their negative CVDs.
• Bitcoin's 30-day implied volatility index is under pressure again, falling to nearly 55% after hitting 58% over the weekend. Overall, the index continues to indicate market calm despite the Iran war-led turmoil in traditional markets. Ether's volatility index suggests the same.
• On Deribit, $BTC and $ETH puts continue to cost more than calls across all time frames in a sign of lingering downside worries. Dealer gamma is predominantly negative between $65,000 and $70,000, which means dealers could buy low and sell high, potentially keeping prices range-bound.

Token talk

• The CoinDesk Memecoin Index (CDMEME) and the DeFi Select Index (DFX) were the two best-performing benchmarks on Monday, rising by 2.8% and 2.2%, respectively, while the bitcoin-dominant CoinDesk 20 (CD20) added 1.5%.
• The perceived strength of the altcoin market can be attributed to a market-wide lack of liquidity. When prices tumbled Friday, the amount of supply on exchanges outweighed demand. This sent several assets well into "oversold" territory" as the move was exaggerated, leading to today's relief rally.
• This liquidity void has plagued the crypto market since October, when a $19 billion liquidation event wiped out market structure, leaving several traders and market makers stranded in its wake.
• In order to break that cycle, bitcoin, the market's anchor, needs to trade back above $80,000 and consolidate, which would mean gains could rotate into the more speculative altcoin market to establish macro levels of support.