First Mover: Bitcoin Flushes ‘Weak Hands’ as Ethereum Hits New All-Time High

Bitcoin (BTC) was higher on Monday at around $33,000, rebounding after a 9.9% drop in the seven days through Sunday, the biggest weekly drop since August. 

“Bitcoin is seeing some consolidation itself after surviving another run at $30,000,” Craig Erlam, senior market analyst for the London-based foreign exchange brokerage Oanda, wrote Monday in an investor update. “A move back above $35,000 may start to change the conversation but the trend is against it these last few weeks and a move lower still looks more likely.”

Ether (ETH), the main cryptocurrency of the Ethereum blockchain, rose early Monday to a new all-time high price of $1,476.12. Ether, which is the second-biggest digital asset by market value after bitcoin, has nearly doubled just in January alone. 

“Given the dip from bitcoin and the steadiness of [ether], we could see investors move capital into the latter as they look for the next crypto asset that is going to perform in the current bull run,” David Derhy, an analyst with the trading platform eToro, said in emailed comments. 

In traditional markets, Asian and European shares rose and U.S. stock futures pointed to a higher open as investors weighed the odds of more economic stimulus. Gold strengthened 0.4% to $1,864 an ounce. 

Market moves

Bitcoin is coming off its worst week in almost five months, but the main takeaway, according to veteran digital-market traders and analysts, is that it wasn’t really all that bad.

A quick glance at price charts shows that declines at least as large as last week’s 9.9% retreat have happened nine times in the past two years. 

And the cryptocurrency’s price has risen so dramatically and consistently over the period that those prior corrections almost look quaint. The worst sell-off in recent memory was the 33.5% weekly plunge in March 2020, when the devastating economic toll of the coronavirus became clear to global investors. But in absolute dollar terms, that $2,690 drop was less than last week’s $3,950 loss, showing just how far bitcoin’s price has climbed since then. 

According to Kraken, the cryptocurrency exchange, buyers appeared to materialize last week whenever prices fell to about $30,000. That’s just above the $29,112 level where bitcoin started off the year, following a 2020 when it quadrupled in price.  

“While 10%+ drawdowns shake conviction, these moves have been met with strong bids,” Delphi Digital, a cryptocurrency analysis firm, told clients Friday in a note. “Shaking out profit takers and ‘weak hands’ is necessary for BTC to make strides upwards.” 

According to Chainalysis, a blockchain-analysis firm, bitcoin’s recent rally to new record highs above $40,000 may have been too much to resist for speculators who have only recently nosed into the cryptocurrency arena, lured by the outsize returns of recent years. 

“New buyer behavior is still a major source of medium-term price volatility and is currently elevated,” Philip Gradwell, chief economist for New York-based Chainalysis, wrote Friday. “It is important to restate that the bitcoin price is still at historically very high levels.”

Ryan Selkis, CEO of the digital-markets analysis firm Messari, wrote that last week’s tumble “looked like a nice little dip for new buyers, and a wealth transfer from some of the weakest-handed sellers I’ve seen in crypto to those with an actual investment thesis.”

Data extracted from the bitcoin blockchain network show the number of addresses with at least 1,000 or more bitcoins increased last week – an indication that large institutional buyers may have been stepping into the market as prices dipped, CoinDesk’s Muyao Shen reported Friday.  

“The buying pressure seen in the lower bounds of the current range have been solid,” Matt Blom, head of sales and trading at the cryptocurrency exchange firm EQUOS, told clients early Monday in a note. “The selling pressure above is in no way weaker. If bulls manage to break out, though, the move to the next level ($34,855) could be explosive and even take us further, back to the upper $38Ks.”

The upshot? Further downside might still be in store, but the limited scope of last week’s price decline reveals plenty of demand for bitcoin at levels well above prices that prevailed in 2020. 

– Bradley Keoun 

Bitcoin watch

The bitcoin market is showing signs of weakening demand from U.S.-based institutions, according to Singapore-based trading firm QCP Capital.

Comparing bitcoin’s price moves during Asia daytime hours and American hours (split into 12 hours each) shows a clear pattern of relentless buying during the North American trading hours and selling in Asia, mainly by large investors (known as whales) and cryptocurrency miners.

The pattern emerged following the March 2020 price crash and had endured until two weeks ago when bitcoin reached record highs above $41,900. Since then, the strength during U.S. hours has lost momentum, QCP Capital noted in its Telegram channel.

The flat-to-negative “Coinbase Premium” – the spread between Coinbase’s BTC/USD pair and Binance’s BTC/USDT pair, which includes the stablecoin tether – also suggests absence of strong demand from high-net-worth individuals and institutions.

“I’ll keep my bearish bias until there are significant Coinbase premium and Coinbase outflow,” Ki Young Ju, CEO of blockchain analytics firm CryptoQuant, tweeted on Sunday. “BTC needs [U.S. dollar] spot inflows from institutional investors to start the next bull run.”

As such, odds appear stacked against the cryptocurrency keeping gains above $33,000.

“We could be in for a classic ‘W’ bottom when the first bounce off the lows is met by another batch of selling before it eventually bounces back for real,” David Lifchitz, chief investment officer of the Paris-based quantitative trading firm ExoAlpha, told CoinDesk in a WhatsApp chat.

– Omkar Godbole

Token watch

Ether (ETH): Three reasons to be bullish include next month’s CME futures launch, the planned transition to 2.0 “staking network” and possible token burns via the EIP 1559 update (CoinDesk)  

Chainlink (LINK): Data-oracle token hits new all-time high price above $25 (CoinDesk) 

What’s hot

Key executive at Huobi crypto exchange said to be taken into custody by Chinese police in investigation related to over-the-counter trading service. (CoinDesk) 

Valkyrie digital assets files application to SEC for bitcoin exchange-traded fund, joining VanEck in struggle to win U.S. regulatory approval. (CoinDesk) 

Wladimir van der Laan, lead maintainer of Bitcoin Core, key software underpinning Bitcoin network, seeks to move further into the “background” for the sake of decentralizing the project, following criticism of his decision to pull Bitcoin white paper from bitcoincore.org. (CoinDesk)  

Crypto exchange Coinbase now has more than $90 billion of assets on platform and more than 43 million registered users. (CoinDesk) 

Singapore exchange and state-owned investment firm Temasek announce joint digital-asset venture focused on capital markets. (CoinDesk)  

New Innovation Hub from Bank of International Settlements (the central bank for central banks) plans platform for testing central bank digital currencies. (CoinDesk) 

Coinbase to offer secondary market for private shares ahead of public stock listing, as pre-IPO contracts change hands at valuation of more than $70 billion. (The Block) 

CNBC stock-picking personality Jim Cramer suggests winner of $731 million Powerball jackpot should put 5% of newfound fortune in bitcoin. (CoinDesk)  

MicroStrategy’s $650 million of convertible bonds offer “very little downside and an almost-free call option on bitcoin,” writes Bill Miller IV, portfolio manager for investing legend Bill Miller’s Miller Value Partners. (Miller Value Partners)  

Bloomberg senior ETF analyst Eric Balchunas argues that SEC is long “past due” in approving a bitcoin ETF. (Bloomberg Opinion) 

Crypto Twitter trader/analyst @CryptoCapo_ says drop in open interest in coin-margined bitcon-derivatives contracts signals market bottom is in. (Daily Hodl)  

“New U.S. regulations regarding non-custodial wallets may push more cryptocurrency users to skip the exchanges altogether and use their coins to directly buy and sell goods and services,” Joel Valenzuela writes. (Cointelegraph) 

Analogs

The latest on the economy and traditional finance

U.S. President Biden unlikely to raise taxes anywhere close to covering his spending proposals. (NYT) 

Biden to push Congress on stimulus after senators question cost. (Bloomberg) 

China overtakes U.S. as world’s leading destination for foreign direct investment. (WSJ)

Investor demand for lowest-rated junk bonds pushes yields to record lows; index of triple-C-rated corporate bonds drops to all-time low of 6.42%, below where 10-year U.S. Treasury-bond yields traded for most of the 1970s, 1980s and 1990s, (WSJ)  

Goldman Sachs stock-underwriting fees surged to $3.41 billion in 2020, more than double the prior year’s amount, buoyed by IPOs for SPACs. (WSJ)  

One-third of staff may work from home permanently post-coronavirus. (Bloomberg)

Coronavirus financial toll mounts as homeowners keep postponing mortgage payments. (WSJ) 

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