5 Things to Know in Crypto Today
- Bitcoin is consolidating just above $20,000 pre-key macro events and eyeing a pennant breakout.
- Ark said this week that it is “neutral to positive” on Bitcoin.
- Voyager Digital filed for Chapter 11 bankruptcy protection in New York on Tuesday.
Bitcoin Eyes Pennant Breakout as Macro Risk Events Loom
Cryptocurrency prices saw two-way chop on Tuesday, dropping in the run-up to the open of US trade, before then recovering as the US session got underway. Bitcoin briefly swung as high as the $20,700s on Tuesday from sub-$19,300 lows earlier in the session. The world’s largest cryptocurrency by market capitalization has calmed and is trading in subdued fashion just above the $20,000 level.
Technicians point out that Bitcoin is currently being squeezed within a pennant formation, suggesting a potential breakout in the near future. BTC/USD is for now capped just below its 21-Day Moving Average (in the $20,200s), but if it can mount a convincing break above this level, that could open the door to a swift run higher to the $22,000/$23,000 area.
For now, crypto traders are keeping their powder dry ahead of key macro events. At 1215GMT on Wednesday, US payroll company ADP will release their estimate of private employment change in the US in June. This will help investors set expectations as to how strong Friday’s official June jobs report is expected to be.
At 1400GMT, ISM Services PMI survey data will be released, which will give investors an insight into the health of the US economy at a time when investors are increasingly expecting the US economy to fall into recession. Then, at 1800GMT, the Fed will release the minutes of its June meeting.
The bank hiked interest rates by 75 bps in June, the largest hike in 28 years amid concerns about runaway inflation. The minutes are thus expected to be very hawkish. Traders should note that Bitcoin also faces the risk of a bearish breakout of its current pennant, which would open the door to a retest of the annual lows in the mid-$17,000s.
Flows Show Investors Bearish on Bitcoin, But Ark Invest Now “Neutral to Positive”
Crypto investment products saw an inflow of $64 million in the week ending on 1 July, but the majority of these flows ($51 million) were into short-Bitcoin products, said crypto analytics firm CoinShares in a report earlier this week.
This marked a record new record inflow into short-Bitcoin products, CoinShares said, highlighting a potential increase in bearish sentiment. However, CoinShares noted an important caveat; the uptick in short-Bitcoin product inflows may have been to the recent launch of the ProShares short BTC ETF in the US.
Ark Investment Management, meanwhile, said in a report earlier this week that it now has a “neutral to positive” outlook for Bitcoin. The firm cited a combination of indicators suggesting that capitulation has reached an advanced stage and that Bitcoin is extremely oversold.
The report read: “Down 70% from its all-time high, bitcoin is trading at or below some of its most important levels: its 200-week moving average, the general cost basis of the market (realized price), the cost bases of long-term (LTH) and short-term holders (STH), and its 2017 peak”.
“Trading below these levels is atypical and suggests extremely oversold conditions… Only four times in history has bitcoin traded below price levels relative to these means,” the report added.
However, the report noted that some key indicators that Ark monitors are yet to see absolute lows, suggesting room for further Bitcoin downside. Ark points to the MVRV ratio – the ratio of Bitcoin’s market cap versus its realized market cap, which approximates the value paid for all Bitcoins currently in existence by summing the market value of coins at the time they last moved on the blockchain.
“Historically, global bottoms occur when the MVRV of short-term holders exceeds the MVRV of long-term holders,” ARK stated. “That condition has not been met, suggesting the potential for more downside.”
Crypto Winter: Voyager Files for Chapter 11 Bankruptcy in New York, Crypto.com Denies Withdrawal Restriction Rumors
Toronto-based crypto lending firm Voyager Digital filed for Chapter 11 bankruptcy protection in New York on Tuesday. The company said it had more than 100,000 creditors and held somewhere between $1-$10 billion in assets. The bankruptcy filing comes a few days after the lender halted withdrawals from its platform.
As the crypto industry struggles to weather the ongoing market downturn, many other rival lending platforms have also halted withdrawals. The most high profile of these was Celsius Network nearly one month ago, while CoinFLEX and CoinLoan have both frozen withdrawals in recent days. Meanwhile, Voyager joins the ranks of major crypto hedge fund Three Arrows Capital, which also recently filed for bankruptcy.
Elsewhere, Celsius has now reportedly repaid $183 million in debt on one of the largest decentralized finance (DeFi) protocols Maker, crypto analysts said on Wednesday citing publically available blockchain data. The debt was repaid in Maker’s native token and USD-pegged stablecoin DAI.
“By repaying the debt, Celsius is possibly freeing up collateral (BTC) that then can be sold on centralized exchanges or via over-the-counter to meet creditor demands and customer withdrawals,” one analyst told CoinDesk. “Given that DeFi loans are overcollateralized, it makes sense for them to do this, as the value unlocked from paying back their loans (collateral less loans) is greater than the value of the loans themselves (should they opt to not repay)”.
Experts Tell Fed that USD Stablecoin Could Boost Buck’s Role as No. 1 Global Currency
The US Federal Reserve published a report on Tuesday outlining what was said at a conference that the central bank recently held with experts to discuss the “International Roles of the US Dollar”. Expert panelists at the conference hailed from prestigious US university MIT, the Bank of International Settlements and major hedge funds and global investment banks.
Panelists broadly agreed that central bank digital currency (CBDC) development outside of the US doesn’t threaten the status of the US dollar as the global reserve currency. Moreover, most agreed that the development of a domestic CBDC would not drastically alter the current global currency ecosystem. Meanwhile, a few panelists argued that USD-pegged stablecoins could boost the buck’s role as the global reserve/trade settlement currency.
The Fed warned in June that stablecoins that are insufficiently backed by liquid assets create “risks to investors and potentially the financial system”, a reference to the collapse of Terra’s algorithmic stablecoin UST. Other fully-backed stablecoins including Circle’s USDC and Tether’s USDT have been able to weather the crypto market storm in recent months.
USDC on Track to Replace USDT as Largest Stablecoin in 2022
Not all stablecoins were born equal, or so investors believe. UST’s collapse has dealt what will likely prove to be a fatal blow to algorithmic stablecoins that are backed by volatile crypto assets (like how UST was backed by Terra’s LUNA token).
Meanwhile, investors have in recent weeks been favoring Circle’s USDC over Tether’s USDT. Both Circle and Tether claim that their stablecoins are backed (slightly more than) one-to-one by real US dollars or liquid equivalents. But Tether has long faced criticism over its lack of transparency over its holdings that back USDT, which has spurred speculation that USDT might actually be under-collateralized.
USDC has faced no such accusations and Circle is broadly viewed as much more transparent about its holdings than Tether. As a result, USDC has been catching USDT in terms of market cap in recent months and may overtake it this year. As of Tuesday, USDC’s market cap was just under $56 billion, up over 8% since May. USDT’s market cap was just over $66 billion, down 19% since May.