A recent analysis conducted by Goldman Sachs has shed light on the turbulent week witnessed in the cryptocurrency market, with a particular focus on Bitcoin (BTC) and Ethereum (ETH). The report highlights a significant 10.4% decline in the total market capitalization, resulting in a staggering loss of $280 billion.
The downturn commenced on a Sunday, marked by three consecutive days of declines in BTC and ETH. However, the market rebounded during the US trading session and demonstrated further resilience in the Asian markets.
A noteworthy observation from the analysis is the robust retracement experienced in the cryptocurrency market. This retracement was partly anticipated due to the rapid surge to mid-March all-time highs and the elevated perpetual futures funding rates, which have now returned to more normalized levels.
The report indicates a decrease in Bitcoin and Ethereum open interest (OI)-weighted funding rates from their early March peaks, signaling a shift towards more sustainable market conditions. BTC OI-weighted funding rate, which peaked on March 5 at approximately 107% annualized, has since retreated to around 15% annualized. Similarly, ETH OI-weighted funding rate, reaching its peak on March 5 at about 104% annualized, has now pulled back to approximately 19% annualized.
Commenting on these trends, the report states, “Zooming out, the sudden retracement and subsequent recovery did not come as a surprise, especially considering the rapid ascent to the mid-March ATH and the elevated perpetual futures funding rates that accompanied it, as investors sought leveraged longs on crypto retail exchanges.”
Investment activities mirrored the prevailing market sentiment, with Bitcoin ETFs witnessing net outflows over three consecutive days, particularly notable in the continued outflows from Grayscale Bitcoin Trust (GBTC) (NYSE: GBTC). However, other BTC ETF holdings remained relatively stable, with modest inflows despite the market downturn.
An analysis of BTC holders revealed early signs of profit-taking, as evidenced by on-chain activity. There has been a slight decrease in the percentage of BTC supply held for at least one year, indicating increased market activity among medium to longer-term holders. Moreover, there has been an uptick in transactional activity, particularly within the 7-30 day band, suggesting a higher frequency of BTC changing hands on a monthly basis.
The report also underscores Ethereum’s performance relative to Bitcoin, noting a decline in the ETH/BTC ratio. The future of spot ETH ETFs remains uncertain, with regulatory decisions on proposals by Fidelity and Grayscale facing delays.
Furthermore, the report mentions a confidential inquiry received by the Ethereum Foundation from an unspecified state authority, adding to the regulatory uncertainties surrounding the world’s second-largest cryptocurrency.
