Trading volumes have shifted to the crypto market, showing significant inflows into top assets. Solana (SOL) surged above $190, contributing to most inflows.
Dominance of Top Cryptocurrencies
The most prominent cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), and Solana (SOL), continue to strengthen their positions. Funds have increasingly flowed into these assets, particularly after SOL surpassed Binance Coin (BNB) and traded above $190. Bitcoin’s dominance rose to 55.5%, while Ethereum and Solana also saw increased inflows, boosting market expectations.
Trading volume has veered heavily toward Bitcoin, Ethereum, & Solana as crypto's topsy turvy week ends on a good note. It's common for market-wide growth to be powered by these layer 1's, then redistributed to layer 2's & more. This may be a likely outcome for this weekend. pic.twitter.com/KjW9dsyPRD
— Santiment (@santimentfeed) July 27, 2024
Data from Santiment indicates that these inflows into major Layer 1 tokens might signal further growth for their related assets. In particular, Ethereum and Solana could see these inflows enhance their DeFi ecosystems and related Layer 2 tokens. The dominance of smaller tokens has declined to around 17% as funds shifted to more established assets. Solana now has a higher market share than Binance Smart Chain and BNB, which holds 3.51% of the total market capitalization.
Stablecoin supply supports market liquidity
In 2024, the market will benefit from a substantial supply of stablecoins, providing liquidity. The total stablecoin supply exceeds $165 billion, with $152 billion in fiat-backed stablecoins. This level of liquidity is comparable to the peak of the bull market in early 2022.
However, the current supply comes during more favorable market conditions, as previous significant issues have been resolved. USDC, known for its reliable asset-backed model, has grown rapidly, increasing its supply to Celo and becoming the most-used stablecoin on Base. USDT has also stabilized and maintained its dominance, particularly in the Ethereum and TRON ecosystems.
Futures market and volatility
The recent market rally has kept Bitcoin options volatility high. Market enthusiasm has led to a slowdown in spot buying, but there has been a record increase in open interest on derivatives. Bitcoin futures have reached peak open interest following the latest fund inflows, with nearly $80 billion in open interest driven by a mix of long and short positions. Within the last day, the market added $1.5 billion in new open interest, indicating potential volatility. Since June 24, the BTC volatility index has increased from 1% to 2.23%. The rise in derivative trading amid slow spot trading raises questions about the market’s sustainability.
The current growth in open interest includes short positions but is dominated by long positions, which could face liquidation attempts. Based on the liquidation heatmap, liquidating short positions might push BTC higher, potentially above $72,000. However, the potential for leveraged trading raises doubts about whether the rally will lead to new highs or a rapid crash due to liquidations.
ETH’s open interest appears healthier, but derivative trading may dominate in the coming weeks. There has been notable spot selling, casting doubts on the BTC rally’s stability. The SOL rally is also driven by derivatives, with open interest reaching a three-month high. ETH remains stagnant with a more modest interest in derivatives and awaits direction from ETF activities.
ETH has seen a surge in social media activity and coin movement on the spot market. Additionally, Ethereum-based USDT activity increased by 126% in a week. The recent trends in trading volumes, stablecoin supply, and futures markets indicate a dynamic and evolving crypto market landscape.
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