by The cryptocurrency market struggled to find stability on Tuesday, extending the weakness that began with Monday’s sharp sell-off. Market sentiment remains firmly in “extreme fear” territory, and attempts at a recovery have so far failed to gain traction. Despite expectations that December might deliver a classic “Santa rally,” traders instead witnessed continued downward momentum across major digital assets.
Bitcoin, the bellwether of the crypto sector, traded near $87,000, pulling back from last week’s high of $92,350. The move erased nearly all gains achieved during the November 21–28 rally. Meanwhile, altcoins—especially the more speculative privacy-focused tokens—continued to underperform, deepening losses from the previous sessions. Across the market, investors are showing caution, uncertainty, and a growing preference for capital preservation as volatility picks up.
Bitcoin Slides as Market Confidence Weakens
After a brief rally last week, Bitcoin’s momentum faded quickly as bearish pressure returned. The sharp drop on Monday rattled traders, triggering fear-driven selling and reinforcing concerns about further downside. While U.S. equities managed to show resilience—with the Nasdaq Composite gaining 6.6% over the past week—Bitcoin failed to keep pace, highlighting a divergence between traditional risk assets and crypto markets.
Bitcoin’s retracement has been significant enough to erase most of its late-November surge. The downturn also reflects broader macroeconomic uncertainty, including concerns over tightened liquidity, shifting interest rate expectations, and the broader global risk-off sentiment.
Altcoins fared even worse. Multiple tokens saw pullbacks of more than 5% in 24 hours, and privacy coins experienced the steepest declines of all. This underperformance underscores the market’s move away from speculative assets toward the relative safety of Bitcoin and stablecoin-linked yield opportunities.
Derivatives Market Shows Defensive Positioning
A key sign of deteriorating confidence can be seen in crypto derivatives activity. Major tokens—including BTC, ETH, XRP, and SOL—recorded notable outflows from futures markets. Open Interest (OI) dropped by as much as 6% in the past day, signaling that traders have been closing positions and reducing exposure.
Derivatives traders appear increasingly cautious as several indicators move toward cycle lows:
• Futures Basis Widens and Weakens
Bitcoin’s 90-day annualized futures basis, which reflects the gap between futures and spot prices, has dropped to around 4%–5%, marking the lowest levels of the cycle. Ether’s basis is not far behind, hovering near 3%–4%.
Such declines typically point to a lack of bullish conviction among leveraged traders.
• Implied Volatility Rises
Bitcoin’s 30-day implied volatility index (BVIV) has risen sharply relative to the U.S. stock market’s VIX, a dynamic that highlights growing uncertainty within crypto. “Fear trades” are becoming more common, and options markets show traders positioning for more turbulence in the weeks ahead.
• ETH–BTC Volatility Spread Narrows
The volatility gap between ETH and BTC has tightened to 21.50, the smallest spread since May 8. A shrinking spread often suggests that traders expect Bitcoin to experience larger shocks than Ether—a shift from the typical pattern in which ETH is more volatile.
• Options Skew Reflects Fear
On Deribit, the world’s largest crypto options platform:
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Put skews remain elevated for both BTC and ETH, showing traders are paying more to hedge downside risk.
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BTC block trades leaned toward put spreads and calendar call diagonal spreads, defensive strategies that benefit from lower prices or controlled volatility.
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ETH activity favored risk reversals and put spreads, again highlighting bearish or protective sentiment.
Collectively, these signals suggest that professional traders are adopting a guarded stance, preparing for potential continued weakness.
Altcoins Extend Losses as Privacy Coins Plunge
Altcoins lagged behind Bitcoin once again, reflecting the market’s preference for stability. While Bitcoin managed a small 0.75% gain on the day, several altcoins slipped into deeper negative territory.
Ether (ETH) fell to around $2,861, and XRP dropped to $2.07, each losing roughly 0.6% over 24 hours.
However, the most dramatic moves came from privacy-focused cryptocurrencies:
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Zcash (ZEC) plunged by 8%, extending its weekly decline to a staggering 33%.
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Monero (XMR) and Dash (DASH) each lost 5–6%, continuing their multi-day downtrend.
The sharp declines suggest that the recent surge in privacy coin interest may have been short-lived. Market participants appear to be abandoning the narrative that privacy tokens are poised for a long-term renaissance. Instead, sentiment is shifting back to Bitcoin, major layer-1 tokens, and decentralized finance (DeFi) protocols that offer yield opportunities even in a declining market.
CoinMarketCap’s Altcoin Season Index remains flat at 24/100, confirming that investor appetite remains low for most non-Bitcoin assets.
DeFi Tokens See Selective Strength, Led by SKY
Although the broader market struggled, a handful of DeFi-related tokens bucked the trend. One standout was SKY, formerly known as Maker (MKR), which surged 6.7% on Tuesday following announcements of upcoming token buybacks.
The renewed interest in SKY is also connected to the impressive growth of its ecosystem’s stablecoin, USDS (formerly DAI). Over the past two months, USDS has expanded its market capitalization from $7.6 billion to $9.5 billion, reflecting rising demand for stable-yield opportunities.
USDS, the primary stablecoin within the Sky ecosystem, currently offers a 4.5% yield through staking, making it an appealing option for investors seeking income during periods of market uncertainty. As more traders shift toward defensive strategies, yield-bearing DeFi assets like USDS have seen growing inflows.
Outlook: More Volatility Expected as Fear Dominates Market Mood
The cryptocurrency market remains on unstable footing. With rising implied volatility, falling futures interest, declining altcoin performance, and growing risk aversion, it’s clear that traders expect more turbulence ahead. Whether or not a late-December recovery takes shape will depend on macroeconomic conditions, liquidity flows, and investor sentiment—none of which currently point to a rapid rebound.
For now, caution appears to be the dominant theme, with both retail and institutional players leaning toward protective strategies rather than speculative bets.
