Bitcoin (BTC) was down for a third straight day, slipping below the $ 34,000 level that had been considered a market floor in recent weeks.
“Downside volatility hit,” Lennard Neo, head of research for the cryptocurrency-focused Stack Funds, wrote Thursday in a weekly newsletter.
In traditional markets, European share indices rose ahead of a press conference with European Central Bank President Christine Lagarde after a meeting where officials left interest rates unchanged and said they might not use the entire promised asset purchase program if not is needed. .
In the United States, stock futures highlighted a higher opening after major indexes plunged to new records on Wednesday as Joe Biden peacefully sworn in as the new president of the United States despite law enforcement warnings over the past week that some protests could turn violent.
Moving the Market
Bitcoin prices have fallen over the past couple weeks, and cryptocurrency analysts are suddenly turning bearish. In the short term, at least.
Even prices for ether (ETH), the second-largest cryptocurrency after bitcoin, seemed to be losing momentum after surging on Tuesday to hold to the record high that had stood in early 2018.
“Bitcoin’s volatility isn’t going away anytime soon, but right now the cryptoverse seems to be in for a lot more pain in the short term,” Edward Moya, of the Oanda foreign exchange brokerage, told clients in an update.
The mood on Wednesday contrasted with hostility seen in traditional markets, as a new era of US politics began with the swearing in of President Joe Biden and the departure of Donald Trump. US stocks rose to their highest ever highs, with Bloomberg and Reuters reporting that investors saw Biden and his team wasting little time in pushing for a new round of trillion-dollar economic stimulus.
The expectation of further stimulus – and the printing of Federal Reserve money to fund government spending packages – has been a major theme to drive large investors towards bitcoin; the cryptocurrency has been increasingly cast as a hedge against inflation, due to hard-coded supply constraints in the underlying blockchain network.
This week, though, such speculation has not been able to curb the growing conviction among analysts that a correction is brewing in cryptocurrency markets, or is already underway. Not even Biden’s first day freeze of controversial crypto-wallet rule could turn the tide, and the news that BlackRock, the world’s largest money manager, couldn’t add bitcoin to its investment mandate.
“Don’t be totally surprised if bitcoin revisits sub-$ 30k territory before the next advance,” Charlie Morris, CEO of cryptocurrency fund manager ByteTree, wrote Wednesday in his weekly newsletter.
Bitcoin prices have climbed 13% in the first few weeks of this year alone, and ether has soared by 70%. Contrast those gains with the performance in the Standard & Poor’s 500 Index of large US stocks, which is up just 2.6% a year so far after the inauguration day rally.
So it could be that the rally in cryptocurrencies has gone too far, too fast. Earlier this week, a Bank of America survey revealed that investors saw “long bitcoin” – shorthand for bets that the price of cryptocurrency will rise – as the “most crowded trade” in global markets. It’s a sign of how bullish everyone had become.
“The market gets what it calls a ‘respirator,’” Matt Blom, head of sales and trading for the cryptocurrency exchange Diginex, told clients.
UBS, a huge Swiss bank, wrote a report on bitcoin last week and figured out several reasons to approach the market carefully.
For starters, the bank’s analysts said they were “skeptical of any essential real-world use cases, which makes it difficult to estimate fair value for bitcoin.” They also outlined the possibility of bitcoin ending up as the crypto industry version of Netscape and Myspace – examples of network applications that had success in the early days of the Internet but have since faded. “While the supply of a single ticket may be limited, the supply of cryptocurrencies as an asset class is infinite,” they wrote.
“The price rises in recent weeks have been extreme by every standard we can think of,” according to UBS analysts.
For the most part, most crypto investors remain bullish long-term – they are only increasingly convinced that short-term turbulence will highlight the short-term downside.
“Bitcoin will almost certainly keep going up eventually, but everything needs to stop here and there,” Michael Stark, a market analyst at broker FX Exness, told CoinDesk’s Daniel Cawrey.
Bearish signals have appeared in price charts as bitcoin breaks lower.
As reported in Bitcoin Watch earlier this week, prices had recently been trading in an ever-narrowing range, forming a pattern known as the “contracting triangle.” (See chart above.) And with Thursday’s move, prices broke below the lower edge of the triangle pattern, considering a bearish signal.
Another technical indicator, the 14-day relative strength index (RSI), has also slipped into the bearish zone, below 50.
And as prices fell on Thursday, bitcoin option traders seemed to hedge against further downside risk.
The one-week call trend, which measures the spread between short-term gift prices (bearish options contracts) and calls (bullish contracts), has risen to a five-week high of 14%. The skew had bottomed out near a staggering -33% week ago, according to a Skew data source.
One, three, and six-month queues have also climbed from recent lows, but are still in bullish territory. The shift is a result increasing demand for disadvantaged hedges, or give, alongside significant sales in bullish calls.
More than 380 January 29 $ 30,000 expiration call contracts were purchased on Thursday, Levitas, a Swiss-based data analytics platform, told CoinDesk. Call sales, meanwhile, account for nearly 50% of total trading volume on major exchanges, according to Skew.
Bearish bets or donations have been drawing offers since Tuesday. Put options at $ 32,000 and $ 36,000 strikes saw high demand Wednesday, ago Deribit Insights. Someone bought more than 600 contracts expiring Jan. 29 gave options Tuesday.
Ether (ETH): Price rise to record high could be first stopped en route to $ 10.5K, Fundstrat analyst predicts (CoinDesk)
XRP (XRP), Dogecoin (DOGE), A coin (BNB), USD coin (USDC): Pornhub, an adult entertainment website, is now accepting payments in 16 cryptocurrencies (CoinDesk)
OKExChain (OKT): A native token for blockchain focused on crypto trading hits $ 64 at listing, suggesting a $ 640M market value (OKEx)
Yearn.finance (YFI): DeFi product farming site is considering $ 200M of new YFI tickets (CoinDesk)
Through (TRX), Tie (USDT): Thin use on Tron passes Ethereum as low fees attract small transactions (CoinDesk)
Make FinCEN’s proposed crypto wallet rules among those affected by US President Joe Biden’s first-day order to freeze all rulemaking (CoinDesk)
Explained the relationship between US government debt and bitcoin (CoinDesk)
Bitcoin Bit Digital miner hits back on “false accusations” of fraud (CoinDesk)
BlackRock gives two funds upfront to invest in bitcoin futures (CoinDesk)
Individuals who are beginning to feel the FOMO bit; “You never know until you play with it and figure it out” (Bloomberg)
Update on traditional economy and finance
Former US Treasury officer (and Ripple board member) Michael Barr will replace Brian Brooks as head of WNO (CoinDesk)
Bond market signals suggest that investors are increasingly expecting higher inflation without any proportionate response from the Federal Reserve to increase interest rates (WSJ)
Some McDonald’s restaurant owners attribute a recent sales bump to the distribution of stimulus check updates (WSJ)
Former President Donald Trump’s director of the Consumer Financial Protection Bureau Kathy Kraninger is stepping down (Reuters)
China’s three biggest telecom operators are asking the New York Stock Exchange to overturn a recent decision to delist (Nikkei Asia Review)
Alibaba shares rise 10% higher after popular billionaire and CEO Jack Ma resurfaced in video (Asia Times Financial)
“This bubble will burst over time, no matter how hard the Fed tries to support it,” asset allocation guru Jeremy Grantham of GMO writes on the internet (GMO)
“Decades of constant stimulus have left capitalism weaker, less dynamic and less equitable, fueling populism,” Morgan Stanley’s Chief Investment Management Global Strategist, Ruchir Sharma, writes in op-ed (FT)
Deutsche Bank FX analysts chart an inconsistent overlap between the size of the Federal Reserve’s balance sheet and inverse-rate yields on 10-year US Treasury bonds: