News

Lukas Conrad, chief product officer at Bitpanda, an Austrian financial services platform, described the trading environment across cryptocurrencies as a “roller coaster ride,” in an email to CoinDesk. 

“The price of Bitcoin has been producing lower highs and lower lows recently while remaining in a downtrend,” Conrad wrote. “Even though pressure from sellers might be diminishing, buyers won’t turn things around until resistance is broken.”

Cryptocurrencies:

Traditional markets:

Bitcoin was already well bid ahead of The B Word conference on Wednesday. And now analysts are questioning whether Musk’s comments are enough to keep bitcoin bulls active.

“The jury is still out on whether this positive spark will bring enough confidence to change the direction of the markets,” wrote Ulrik Lykke, executive director of crypto hedge fund ARK36, in an email to CoinDesk.

“Investors should still be attentive to the risk and realize that this may indeed not be enough to bend the current downwards momentum,” Lykke wrote. 

Short-term holders who are underwater (holding bitcoin significantly below the acquisition cost) are in capitulation mode, according to data from Glassnode. 

The chart below shows the short-term holder market value to realized value (MVRV) ratio, which is at the lowest level since January 2020. In a bearish price trend, a low MVRV ratio is typically aligned with capitulation events, according to Glassnode. 

Bitcoin’s dominance ratio, which measures bitcoin’s market capitalization relative to the total market capitalization of major cryptocurrencies, is stabilizing around 46%. The ratio has risen from a June low around 39%, which could signal further upside in bitcoin relative to other cryptocurrencies. 

It is possible that bitcoin is seen as a safe haven as altcoins experience sharper selloffs during bear markets similar to 2018.

Ether has been consolidating relative to bitcoin over the past two months. The ETH/BTC ratio could see a short-term breakout, especially if ether holds above the $2,000 level.

Financial regulators need to consider “the worst case scenario, the adverse scenario and the different likelihoods of those scenarios, and then assessing risk” when regulating stablecoins, Dan Burstein, general counsel and Chief Compliance Officer of Paxos, said in a TV interview at CoinDesk’s First Mover. 

The worst-case scenario would be a run on assets, according to Burstein. “If those assets are held in illiquid assets, or risky assets, then those might not be able to be sold for $1. And those tokens are then going to be under reserved, they’re going to break the buck, and they’re not really entitled to the name of stablecoins.” 

Reddit chooses Arbitrum: Arbitrum has been selected by Reddit to make the social media site’s Ethereum-based Community Points system ready for prime time. Rollups, a solution for the world computer’s limited capacity, temporarily bundle transactions on a sidechain so that more users can participate in the primary network. Reddit said Thursday that Arbitrum beat out 21 other entrants to become the winner of its “Scaling Bake-Off.” Other projects being considered included Solana, StarkWare and Polygon, to name a few. 

Ethereum-based authentication platform raises $27M: Magic, an Ethereum-based authentication platform that allows users to log into websites without relying on passwords or the centralized honeypots that store vast lists of them, has closed a $27 million funding round. The Series A round, announced Thursday, was led by Northzone and included Tiger Global, Volt Capital, CoinFund and Digital Currency Group (also the owner of CoinDesk). It brings Magic’s total funding to $31 million, following a $4 million seed round in May 2020 that included the likes of Placeholder, SV Angel and Naval Ravikant.

Most digital assets on CoinDesk 20 ended up higher on Thursday. In fact everything was in the green except for dollar-linked stablecoins.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

stellar (XLM) +18.1%

aave (AAVE) +11.88%

polkadot (DOT) +8.51%

One of his privately held ventures, aerospace company SpaceX, holds BTC (+0.98%), Musk said. SpaceX’s bitcoin holdings had not been previously disclosed.

The entrepreneur and provocateur said he personally owns bitcoin, ether (ETH, +3.78%) and, naturally, dogecoin (DOGE, -0.29%).

Publicly traded automaker Tesla, whose BTC bags were revealed in February, still holds the asset in its treasury, the CEO said.

The bitcoin price jumped Wednesday by the most since mid-June. At one point, the largest cryptocurrency was changing hands around $32,800, up more than 10% over the past 24 hours, but later pared those gains to about 6%.

According to Quantum Economics founder Mati Greenspan, bitcoin’s price rise earlier on Wednesday was partly on anticipation of the event.

“As we await what promises to be the greatest-ever bitcoin livestream, it’s clear that the market is already very excited,” Greenspan wrote in his daily newsletter. At its peak, Dogecoin was up 19% on Wednesday to about 20 cents.

On Tesla accepting bitcoin for car payments again, Musk said the network’s energy usage is improving and Tesla is doing some more due diligence on this, but that Tesla would “most likely” resume accepting BTC for payments. The price of bitcoin fell sharply after Musk first announced in May that Tesla would no longer accept bitcoin as payment for its products because of concerns over the amount of energy used to mine it. 

Musk also asked fellow conference participant Jack Dorsey, the CEO of Twitter and Square, whether he would consider accepting bitcoin as payment from Twitter’s advertisers as a way to support the cryptocurrency. 

Dorsey replied that he agreed with the concept but that he was more focused on creating “economic incentives in the network itself without having to rely on advertising.” 

When Musk pressed him for an answer of whether he would actually allow advertisers to pay with bitcoin; however, Dorsey laughed and stopped short of committing to do it right away.

And on the subject of his favorite crypto dogecoin, about which he often tweets, Musk said he likes that the DOGE community is very irreverent and “has great memes and loves dogs, and I love dogs and memes.” 

“The most ironic and entertaining outcome would be the the cryptocurrency that was started as a joke to make fun of cryptocurrencies ends up being the leading cryptocurrency,” Musk said, chuckling.

Dogecoin pared its gains later in the day and was up approximately 10% to just under 19 cents over the last 24 hours.

UPDATE (July 21, 20:04 UTC): This story was updated to reflect additional comments from Twitter and Square CEO Jack Dorsey, as well as comments from Musk about dogecoin.

Open interest, or the number of futures contracts traded but not squared off with an offsetting position, rose to 397,873.36 BTC on Tuesday, reaching the highest tally since May 18, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion. 

When measured in kind, the metric has risen by more than 100,000 BTC since late May. According to experts, the uptick in open interest indicates traders have been opening short or sell positions amid flat-to-negative price action in the cryptocurrency. Bitcoin has mainly traded in the $30,000 to $40,000 range in the past two months, barring a couple of short-lived dips to $29,000.

“In my opinion, it’s mostly short futures, given the persistent negative funding rates in perpetual markets over past few weeks as well as futures markets trading in backwardation,” Shiliang Tang, chief investment officer of LedgerPrime, a $130 million crypto hedge fund, told CoinDesk. 

The perpetual market has consistently seen negative rates since mid-May. 

Calculated every eight hours, the funding rate refers to the cost of holding long/short positions in the bitcoin perpetuals (futures with no expiry) market. The metric is used by exchanges offering perpetuals to balance the market and guide perpetual prices toward the spot price. 

A positive funding rate means longs are paying shorts to keep the position open, and the market is skewed bullish. Meanwhile, a negative funding rate implies a bearish market positioning. 

The three-month basis, or the difference between the price of the three-month futures and the spot price, recently turned negative, flipping into the so-called backwardation, a sign of bearish sentiment among futures traders. 

“Institutional investors seem very cautious at the moment and in general seem to be in the process of de-risking,” Arcane Research said in a weekly research note published Tuesday. “The futures premiums on the unregulated offshore derivatives market is also trending towards zero, with FTX still trading at a slight premium.”

One question is whether the uptick in open interest results from direction-agnostic arbitrage strategies, which involve buying bitcoin in the spot market against a sell position in the futures market. The strategy seeks to profit from the futures premium, which evaporates as expiry nears and converges with the spot price on the day of the settlement, making relatively low-risk returns for the carry trader. 

However, the regular cash-and-carry strategy has lost its shine with premiums in single-digits or negative (backwardation) compared with the record 40% basis in mid-April. 

Some traders anticipating a bullish revival and a rise in the futures premium may have employed a “reverse cash-and-carry” strategy by selling bitcoin in the spot market against a long futures position.

“Increased reverse cash-and-carry positions could have lifted open interest, but I doubt that it’s the primary driver,” Rahul Rai, managing partner at Gamma Point Capital, said. “So overall, it looks like there’s decent short interest at these levels.” Gamma Point Capital runs a market-neutral fund. 

LedgerPrime’s Tang said reverse cash-and-carry strategies appear quite unattractive with annualized premiums in single digits. Further, Tang pointed to low bitcoin borrowing rates offered by lending-borrowing protocols as evidence of weak demand to borrow bitcoin and short against a long position in the futures market. 

All things considered, the futures market is mainly biased bearish, which leaves the door open for sharp corrective rallies in bitcoin’s price. When leverage is skewed to the bearish side, a move higher often results in forced closure of short positions (exchanges square off shorts). That, in turn, puts upward pressure on the cryptocurrency’s price, leading to exaggerated price moves. “A rally up could cause them to get liquidated,” Rai said.

Bitcoin is currently trading at $31,400, representing a 5% gain on the day.

Also read: Bitcoin Retakes $31K as Traditional Markets See Risk Reset, BNY Mellon Makes Crypto Push 

“The week closed with the largest net outflow of -90.76 BTC since mid-May,” said the report. 

The slowdown suggests institutional demand for the largest currency by market cap remains weak across these regulated products, according to Glassnode. 

The bitcoin price fell early Tuesday below the crucial support level of $30,000 for the first time in four weeks. As of press time, bitcoin was trading around $29,960.

While data tracked by Glassnode shows weak institutional demand, the situation is somewhat encouraging in Europe. 

“This is only $3 million of outflows,” said Laurent Kssis, managing director of ETPs at 21shares AG. “In Europe, some ETP bitcoin have seen larger outflows in one day.” 

Also contributing to the bearish case for bitcoin is the performance of the Grayscale (GBTC) bitcoin trust share price. The GBTC shares continued to trade last week at a notable discount to the fund’s net asset value, ranging between 11% and down to 15.3%, demonstrating lackluster demand for the cryptocurrency, according to Glassnode. 

Grayscale is owned by CoinDesk parent Digital Currency Group.

The cryptocurrency was trading around $29,998 at press time and is down about 5% over the past week.

Bitcoin has been locked in the broad price range of $30,000 to $40,000 since mid-May, and briefly broke below the $30,000 mark on June 22. The cryptocurrency fleetingly traded at $29,700 a day after the People’s Bank of China ordered the country’s major financial institutions to stop facilitating crypto transactions.

“I am expecting a strong dip towards $22K,” said Patrick Heusser, head of trading at Crypto Finance AG, in a telegram interview on Monday.

Wall Street is seeing “too much froth” and current virus jitters are triggering widespread panic selling of every top performing asset, with bitcoin (BTC, -5.03%) being right at the top of this list, according to Edward Moya, senior market analyst at Oanda.

Moya said that bitcoin could be vulnerable to a flash crash towards the $20,000 level which “should attract many institutional buyers that have been waiting patiently on the sidelines,”

“If the stock market selloff intensifies, bitcoin and Ethereum will easily extend their declines,” said Moya.

Katie Stockton, founder and managing partner of Fairlead Strategies, said that the consolidation phase bitcoin is currently experiencing is “neutral.”

But in her view, she said, “a breakout is more likely than a breakdown.”

In April, the bitcoin network was “so vibrant, it wasn’t difficult supporting prices above $50K,” said Charles Morris, founder of ByteTree Asset Management.

However, in recent weeks, Morris said, the level of network activity has collapsed.

“Now it is more in keeping with a $15K bitcoin price than a $50K,” he said.

Bitcoin peaked just below $65,000 in mid-April.

Bitcoin was trading at around $30,600 at press time and is down about 3% over the past 24 hours. The world’s largest cryptocurrency is up about 4% year to date, compared with a roughly 12% return for the S&P 500 Index.

Cryptocurrencies:

Traditional markets:

Regulatory scrutiny regarding stablecoins is also weighing on cryptocurrencies. The People’s Bank of China (PBOC) issued a white paper on Friday outlining initial research for the nation’s digital currency project, which appears to challenge existing cryptocurrencies and stablecoins. 

“Cryptocurrencies are mostly speculative instruments, and therefore pose potential risks to financial security and social stability,” the PBOC’s white paper stated.

“Some commercial institutions even plan to launch global stablecoins, which will bring three risks and challenges to the international monetary system, payment and clearing system, monetary policies, cross-border capital flow management, etc.,” the report said.

Another source of selling pressure across risk assets could be the reduction of government stimulus. “Too much stimulus breeds complacency,” MRB Partners wrote in a research note published on Friday. 

MRB also noted widespread asset price inflation, which can lead to market imbalances similar to an episode in Japan in the 1980s that preceded a decade of low investment returns.

The chart below shows bitcoin’s current range, which is similar to the sideways pattern of between $5,900 and $7,400 in 2018. The previous range, although more volatile than the current pattern, preceded a nearly 45% sell-off, which extended the bear market until prices recovered in mid-2019. 

A decline was also seen in ether (ETH) below the $400 price level in 2018, similar to the drop to below $2,000 last week.

Bitcoin’s near-term volatility is starting to rise after declining from peak levels in June. Some analysts expect selling pressure could increase, causing bitcoin to break below $30,000 support.

“Front-end vols have been hit the hardest, creating a very steep volatility term structure,” QCP Capital wrote in a Telegram chat. “It makes sense to roll short July positions to September given the significant dip in front-end vols.”

“Front-end vols” refers to “short-term volatility.”

“Bitcoin volatility has started to spike up and is trading close to 80% for July expiry,” Pankaj Balani, CEO of Delta Exchange, wrote in an email to CoinDesk. “We can see sharp moves on the downside if BTC breaks below $30,000 convincingly.”

Balani also noted that options sellers have become more aggressive as bitcoin trades in a tight range. There has been more put writing at $30,000 and $32,000 strikes on the downside, he said. 

Digital-asset funds have attracted capital over the past two weeks, albeit at a slower pace as investors remain cautious after the crypto crash in May. It appears that investors are warming up to ether, which saw a third consecutive week of inflows, totaling $11.7 million, according to a report by CoinShares.

As the President’s Working Group on Financial Markets discusses stablecoins at a meeting today, debates about how stablecoins should be regulated heated up. CoinDesk Columnist JP Koning wrote that regulators may have contributed to the fast growth of stablecoin supply because of their failure to close the “pseudonymity loophole” in such financial products earlier. 

In an academic paper titled “Taming Wildcat Stablecoins” released Saturday, Yale economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang said that without proper regulation, the world of stablecoins could evolve into one reminiscent of the 19th century’s free banking period in the U.S. 

It is not the first time for the analogy to be used, and Nic Carter, another CoinDesk columnist explained why. 

All digital assets on CoinDesk 20 ended up lower on Monday. 

Notable losers: 

the graph (GRT) -8.56% 

polkadot (DOT) -7.98%

aave (AAVE) -7.12%

The largest cryptocurrency by market value may have been buoyed by a CoinDesk report that Bank of America has approved trading in bitcoin futures for some clients, according to Edward Moya, senior market analyst for Oanda. 

“This is a big commitment for America’s second-largest bank and signals that interest in trading cryptocurrencies is here to stay,” Moya wrote in an email. “On Wall Street, if one bank sees opportunity in doing something risky, the rest will easily justify following suit.” 

Cryptocurrencies:

Traditional markets:

Analysts said bitcoin might be prepping for a price breakout – higher or lower – after trading in a range between roughly $30,000 and $40,000 for the past eight weeks. 

The big concern is a drop below the psychological level of $30,000 might trigger additional selling as options traders look to square positions.  

“There is a big move coming,” blockchain analyst William Clemente III wrote Friday in Anthony Pompliano’s newsletter.” Theoretically, we could be looking at this big move in the next few days but could take up to those full three weeks.”

The breakout looks more likely to be to the downside, based on the look of bitcoin’s price chart, according to Mati Greenspan, founder of the cryptocurrency and foreign-exchange analysis firm Quantum Economics.  

“Bitcoin’s chart looks really ugly at the moment,” Greenspan wrote in his newsletter. “The downward slope that has materialized over the last few days gives the appearance that gravitational forces are calling for a retest of the red-line support at $20,000, the previous all-time high. In technical terms, this is known as capitulation.”

Earlier this month, Circle, the company behind the fast-growing dollar-linked stablecoin USDC, announced plans to become a public company at a $4.5 billion valuation, via a deal with a special-purpose acquisition corporation (SPAC).

Charlie Morris, founder of ByteTree Asset Management, speculated this week the deal could end up luring more investors to cryptocurrencies.  

It’s “unquestionably the starter stock for the cautious,” Morris wrote July 14 in his weekly newsletter. 

Big investors might find the stock hard to resist due to USDC’s fast growth: The stablecoin’s supply has soared to more than $25 billion, from about $3.9 billion at the start of the year. “It’s clear to the eye this company is growing like a weed,” Morris wrote. 

What might make the new shares more attractive for portfolios is that USDC “powers crypto, yet has none of the volatility, making it a natural haven in comparison to the asset managers or miners whose fortunes are linked to crypto prices,” according to Morris. 

But that might just be a camel’s nose under the tent: 

“The old world will end up owning all of these stocks regardless, and that is why index funds always amuse me. They just buy whatever is stuck in front of them, meaning that investors who are trying hard to avoid crypto will end up owning it. Before long, everyone will be invested in crypto and crypto stocks, whether they like it or not, and Circle’s listing will be a crowd pleaser.”

The parabolic growth in the market cap of stablecoin giant tether (USDT) suddenly came to a grinding halt at the end of May, just as bitcoin’s price was coming off its all-time highs. 

According to analysts and market participants who spoke to CoinDesk’s Muyao Shen, the sudden pause reveals that the most traded cryptocurrency in the world is seeing its dominance threatened by three unprecedented challenges combining in a perfect storm to rattle the stablecoin.

An executive from Tether, while acknowledging the demand for USDT has fallen, argued the trend is not exclusive to the token.

“Demand for tether ebbs and flows, and has been impacted by lower demand in recent weeks,” Paolo Ardoino, chief technology officer at Tether, said in a written response via a spokesperson.

Most digital assets on CoinDesk 20 ended lower on Friday. 

Notable winners as of 21:00 UTC (4:00 p.m. ET):

stellar (XLM) +3.37%

eos (EOS) +3.12%

Notable losers: 

polkadot (DOT) -5.4%

yearn finance (YFI) -5.26%

algorand (ALGO) -4.79%

“Bitcoin does look fragile,” Lennard Neo, head of research for Stack Funds, wrote in an investor update. “Unless we see a clear break into the positive region, it is difficult to assume the speculative bulls are back.”

Cryptocurrencies:

Traditional markets:

Federal Reserve Chairman Jerome Powell, testifying before the U.S. Senate, weighed in on two areas dear to cryptocurrency traders – the prospect for outsize inflation as the economy reopens and the possible, eventual rollout of a digital dollar. 

Powell said he was surprised at how quickly inflation had ticked up. A report earlier this week showed that U.S. consumer prices rose at their fastest pace in 13 years. Federal Reserve officials have characterized the uptick as “transitory,” a rationale for maintaining low interest rates and monthly purchases of $120 billion in Treasury or mortgage securities without fears of runaway prices.  

It’s a crucial matter for bitcoin traders who have bet either that the cryptocurrency will hold its value as the dollar’s purchasing power weakens or that it would face selling pressure as a risky asset if the Fed moves to rein in its monetary stimulus. 

“We’re experiencing a big uptick in inflation, bigger than, than many expected, bigger certainly than I expected,” Powell said. “And we’re trying to understand whether it’s something that will pass through fairly quickly, or whether we’re in fact, we need to act one way or the other.”

Separately, Powell said he was undecided on whether the benefits of central bank digital currencies outweigh the costs. “The more direct route” would be to regulate stablecoins, Powell said, as reported by CoinDesk’s Nate DiCamillo. “Our obligation is to explore both the technology and the policy issues over the next couple of years, so that we’re in a position to make an informed recommendation.” 

The remarks came a day after Powell testified before the U.S. House of Representatives that “you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies,” if there were a digital dollar. 

The simplistic days of trading by scanning technical charts and the spot market order book are passé, CoinDesk’s Omkar Godbole reports.

The bitcoin market has matured since the March 2020 crash, and participants can no longer turn a blind eye toward macroeconomic developments and activity in the futures and options market. 

That was especially the case on Thursday, when the sentiment against assets deemed to be risky on Wall Street put downward pressure on bitcoin and pushed the cryptocurrency toward the $30,000 support level, which, if breached, could invite more selling pressure from options traders, leading to a quick slide. 

With bitcoin locked in the broad range of $30,000 to $40,000 since mid-May, many options traders have been selling puts at the $30,000 strike and selling calls at the $40,000 strike. 

But bitcoin is pushing toward the lower end of the range at $30,000. If that level breaks, traders who sold puts at that level may resort to hedging downside risk by shorting bitcoin futures or selling bitcoin on the spot market. 

“If support or resistance levels break, traders will need to quickly hedge because prices will move to new levels fast,” Greg Magadini, CEO of Genesis Volatility, said. “The hedging activity from various traders on the same side of the volatility trade also creates a self-reinforcing event.”

Web search data shows the general populace has lost interest in bitcoin, thanks to the usually volatile cryptocurrency going silent in recent weeks, Godbole reports.

Google Trends, a widely used tool to gauge general interest in trending topics, is currently returning a value of 19 for the worldwide search query “bitcoin price” over the past five years.

That’s the lowest reading since December and marks a significant decline from the peak of 86 observed two months ago. Google Trends provides access to a mostly unfiltered sample of actual search requests made to Google and scales their searches on a range of 0 to 100, according to the company.

The cryptocurrency’s two-month-long dull price action of $30,000 to $40,000 seems to have driven away retail interest, which surged earlier this year.

The Lightning Network has increased its capacity by 100 bitcoin in just five days, the fastest growth ever, CoinDesk’s Myles Sherman reports. 

The network capacity has climbed to record levels above 1,800 BTC locked in, data show. 

In April, the network reached a milestone of 10,000 nodes and had just over 45,000 payment channels holding 1,158 BTC. The number of nodes has since more than doubled to 22,781, while the number of channels jumped to 56,103. 

For context, it took nearly a year for the number of nodes to double last time from 5,000 to 10,000. 

Lightning Network’s development has been slow, steady and cautious – like anything else that promises to be a major step forward for Bitcoin. But as other coins and chains touted “faster, cheaper transactions,” many bitcoiners were becoming increasingly impatient for Lightning to be ready for prime time. Even now it’s not quite there, and developers caution users that it’s still in the early stages of development.

The big picture is that the Bitcoin network by itself is seen as slow, processing up to seven transactions per second. That “throughput” would need to increase by magnitudes in the thousands or even millions in order to host the global economy, mostly because any blocks written above 1 megabyte are invalid on the current Bitcoin mainnet. 

“With on-chain fees going up with bitcoin appreciation cycle, it’s becoming an imperative to use Lightning as a low-cost alternative to transfer smaller amounts of bitcoin,” Oleg Mikhalsky, a partner at Fulgur Ventures, a firm that specializes in researching and investing in Lightning-focused projects, told Sherman. 

Most digital assets on CoinDesk 20 ended up lower on Thursday. In fact everything was in the red except for dollar-linked stablecoins.

Notable losers: 

chainlink (LINK (-7.15%)) -6.25%

filecoin (FIL (-5.93%)) -5.17%

litecoin (LTC (-4.54%)) -4.72%