First Bidder: Bitcoin Newbies Get A Volatility Lesson as Old Pros Lament FUD

Bitcoin (BTC) appeared to be stabilizing above $ 31,000 after plummeting on Thursday, the highest since March.

“A $ 30,000 cut might have been bad news but it turned things around,” Craig Erlam, senior market analyst for Oanda’s London foreign exchange brokerage, told clients early Friday in an email. “We may see a slight rebound now, just as we did earlier this month. But the price action we’ve seen this month suggests there is some nervousness around these levels. “

In traditional markets, European shares slipped and US stock futures pointed to higher openness, amid growing concerns about the potential impact of coronavirus-related measures in places including the UK, Italy, Germany and Hong Kong. Gold weakened 1% to $ 1,851.43 an ounce.

Market movements

It was one of those days in cryptocurrency markets where, at least for the bulls, everything seemed to go wrong.

Bitcoin prices fell 13% on Thursday at the biggest meltdown in the market since panic-fueled sales in March last year, when the devastating economic toll of the coronavirus became apparent. Ether (ETH), the second-largest cryptocurrency after bitcoin, fell 19%, just days after eclipsing its all-time high of the 2018 bull run.

“The broader cryptoasset market is finally putting back some of its recent gains in what many still believe to be a ‘healthy’ or ‘much needed’ correction across the market,” he wrote the Kraken cryptocurrency exchange in daily email.

Bitcoin price chart, showing 2021 trading in perspective.
Source: TradingView / CoinDesk

As reported Thursday in First Mover, the buzz in the bitcoin market flipped bearish as troublesome patterns appeared in price charts, most notably a breakdown of what analysts called a “contracting triangle.” Basically, bitcoin had been trading for the past couple weeks in an ever-narrowing narrow range between about $ 34,000 and $ 40,000, and as prices slipped below the lower threshold, sales accelerated.

It didn’t help that all sorts of other nettlesome news titles were floating around on social media and the mainstream financial press.

Those included reports of appalling “double spending” on the Bitcoin blockchain that could reveal a serious security vulnerability. As reported by Colin Harper of CoinDesk, the hub wasn’t a big deal: “In this case, a chain reorganization of one block happened, which is quite common,” Jason Lau, COO of the OKCoin exchange, told CoinDesk .

But the fear, uncertainty and skepticism (known as FUD in crypto cycles) continued as crypto and twitterati traders discussed the perceived risks posed by the rapid growth in the dollar-linked fixed-currency (USDT) tether, which is under investigation by New York. Attorney General’s Office.

Some investors focused on the attention of U.S. Treasury Secretary Janet Yellen’s nominee during a confirmation hearing earlier this week that cryptocurrencies are a “particular concern” when it comes to financing terrorism. But in a follow-up response to questions asked at a US Senate hearing, Yellen wrote that cryptocurrencies also have the potential to “improve the efficiency of the financial system,” as reported by CoinDesk’s Nikhilesh De.

While traders in digital markets are accustomed to volatility, it may have been a lot to take for the newbies who have only crept into digital markets – attracted by last year’s price increase fourfold doubling the year before and that captivating narrative bitcoin should hold its value during an era of rampant central bank currency printing due to the harsh restrictions on the cryptocurrency’s new supplies, which are coded into the network’s original programming basic blockchain.

“Corrections are a natural part of any market and are particularly natural in the bitcoin ecosystem,” Michael Sonnenshein, CEO of Grayscale Investments, told CNBC. Grayscale of New York, a unit of Digital Currency Group, which also owns CoinDesk, has been one of the biggest ramps in recent months for large institutional investors looking for exposure to bitcoin and cryptocurrencies in more generally.

Chart of open bitcoin option contracts (left axis), with their strike prices (lower axis).
Source: Skew.

Where does all this leave the market?

Bitcoin’s cumulative percentage earnings for 2021, which had zoomed to as much as 45%, have now been slashed to just 8.3%.

That’s still roughly triple what US stocks have done this year. For crypto traders though, it’s pretty funny. Some high sheets had bought bitcoin options that won’t pay out unless prices exceed $ 72,000 on Jan. 29. To get there at this point, the cryptocurrency would have to more than double over the week next.

According to the exchange’s Kraken, plenty of buyers appeared in over-the-counter markets as bitcoin collapsed: “Flow out of America was driven primarily by opportunistic BTC buyers who had been targeting the $ 30K- region. $ 33K for a long time. ”

As Daniel Cawrey of CoinDesk pointed out, Thursday’s price dive came on an unusually light trading activity: Daily total on eight CoinDesk-tracked exchanges was $ 860 million late afternoon in New York, a paltry show compared to last month’s average of $ 4.3 billion.

Yet, the noisy question is hard to avoid: “Is this the beginning of a deeper piece of just testing the range floor?” Matt Blom, head of sales and trading for digital asset exchange company EQUOS, told clients in note.

For now, prices appear to have stabilized around $ 31,000, but analysts have warned that falling below the $ 30,000 psychological threshold could lead to further sales.

According to Blom, it’s a bullish signal that around 270,000 bitcoins, worth about $ 8.5 billion at current price levels, are aiming for “known accumulation wallets, which deplete exchange balances, now sitting on their lowest levels since August 2018. ” Simply put, bitcoin holders are not rushing to liquidate exactly.

“Fundamentally, nothing has changed the core messages,” Blom wrote.

The easiest thing to say is that bitcoin is likely to remain volatile.

“In early 2021 we have already seen intraday volatility rearing its ugly head, and we believe it is likely to do so again throughout the year,” cryptocurrency investment company CoinShares wrote Thursday in a report.

Watch Bitcoin

Coinbase premium (lower chart, in blue), plotted against bitcoin price.
Source: CryptoQuant

Bitcoin’s short-term price woes are probably not over yet, say analysts, with one of them predicting a further decline to $ 26,000.

“I’m not sure the low of $ 28,000 seen early Friday is the bottom,” Ki-Young Ju, CEO of blockchain analytics firm CryptoQuant, told CoinDesk. He pointed to a negative “Coinbase premium” as evidence of weak dip demand from large investors.

The Coinbase CryptoQuant premium indicator measures the spread between the Coinbase BTC / USD pair and the BTC / USDT Binance pair, which includes the stablecoin tether. Positive spread implies strong institutional inflows.

Coinbase’s premium fell as low as – $ 227 in the last 24 hours. According to Ju, bitcoin was trading steadily for a premium of over $ 50 on Coinbase throughout the $ 20,000 to $ 40,000 rally, citing large spot market inflows from large investors.

Some analysts remained optimistic about the long-term outlook of the cryptocurrency.

“Bitcoin’s history is rife with such shocks, and we expect a whirlwind reversal to $ 50,000 in short order,” said Jehan Chu, a managing partner at Hong Kong-based crypto investment firm Kenetic Capital.

Read More: Bitcoin Fares Further Losses Before Rally Resumes, Analysts Say

What’s hot

Bitcoin worries ‘fades’ as crypto goes mainstream, says S&P (CoinDesk)

Minority mining pools threaten collusion against Ethereum’s controversial update (CoinDesk)

Guggenheim Chief Investment Officer Scott Minerd, who predicted bitcoin prices would eventually go to $ 400K, told CNBC on Tuesday that it sees a potential price to $ 20K in the near term (CoinDesk)

Treasury Secretary nominee Janet Yellen offers US Parliament a more innovative opportunity (in writing) on ​​cryptocurrencies (CoinDesk)

Investment grade corporate bonds have lost money so far this year, moving from 2020 when the Federal Reserve’s emergency support raised the market (WSJ)


Update on traditional economy and finance

US President Joe Biden to sign executive orders to promote food benefits, workers’ rights as part of coronary virus relief (CNBC) economic action

Professor Chris Brummer in law tipped Georgetown (which hosts an annual conference on financial technology) as a potential candidate to replace Heath Tarbert as chairman of the Commodity Futures Trading Commission, which oversees US-based cryptocurrency derivatives (CoinDesk)

European Central Bank President Christine Lagarde says pandemic still “poses serious risks” and that “in this environment sufficient financial stimulus remains essential” (CNBC)

JPMorgan’s board holds CEO Jamie Dimon’s annual salary at $ 31.5M (Reuters)

Mark Yusko of Morgan Creek is initiating an ETF for SPACs along with former Credit Suisse CEO Brady Dougan (WSJ).

Tweeting a day

Sign up to receive First Mover in your inbox, every day of the week.