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Weekly insights, news and analysis for the professional investor By Galen Moore, Director of Data & Indexes June 27, 2021 Sponsored by Bitcoin (BTC) - $33,313.38 Ether (ETH) - $1,867.72 Prices as of 06/27/21 @ 8 a.m. UTC If you were forwarded this newsletter and would like to receive it, sign up here.
Friends:
It looks like the week is ending the same way it started: with a crash. In today's newsletter, we make a bold (or not) call on market regime, get into why cryptocurrency markets are likely to stay under sell pressure for the next few weeks, and identify data points that indicate this bear may not live long. If you're new here, welcome. If you're not, forward this to a friend. Either way, hit "reply" with your feedback and questions.
– Galen Moore, Director of Data & Indexes
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THE BRIEFING Cryptocurrencies are in a bear market. It's not a call to be taken lightly. Analysts have already made bear-market calls prematurely on two occasions this year, numbly applying an off-the-shelf rubric (a 20% drop in a market benchmark).
The chart above tracks cryptocurrency bull and bear markets across the years, using this methodology. The XBX reached its all-time high on April 14 (UTC): $64,888.99. By April 22, it had fallen by more than 20%, to a low of $50,500. (Since that time, it's fallen as low as $28,825.76.) As of Sunday, 24 days remain until that 90-day threshold.
Spot market alternatives
1. GBTC discount
Shares of the Grayscale Bitcoin Trust (GBTC), the largest bitcoin fund, have traded at a discount to net asset value since February. That's unlikely to change, as a large raft of shares in the trust approach their lockup expiry this July. GBTC cannot be redeemed, but some investors who might have bought bitcoin in the spot market are likely to take advantage of the discount instead. (Disclosure: Grayscale is owned by Digital Currency Group, the parent company of CoinDesk, and GBTC is benchmarked to the CoinDesk Bitcoin Price Index (XBX).) 2. ASIC glut
A rudderless market
These tea leaves can be misleading, but the quick takeaway is that nobody is in the driver's seat right now. Network data bears this out, with active addresses down on both Bitcoin and Ethereum networks.
'Fundamentals' say otherwise
The chart above, from Glassnode earlier this week, shows that a growing share of the bitcoin that has moved during recent sell-offs has been "young coins," i.e., coins that last moved within the past six months. Short-term investors are selling, while longer-term hodlers stand pat. As Coin Metrics' Lucas Nuzzi noted last week, hodlers' unrealized gains haven't hit levels that preceded bitcoin's past major crashes.
A good time for a vacation
Conclusion: If, like me, you're planning on taking a vacation in July, your timing is good.
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CHAIN LINKS Bitcoin fell through $30K early in the week, before recovering to the low $30,000s, nearing a retest of last cycle's high at $20K. TAKEAWAY: May and June’s CoinDesk Bitcoin Price Index (XBX) returns have been -35.5% and -13.5% (as of Saturday's UTC 24h close), respectively, or a two-month return of -44%, putting it on track for its worst back-to-back months, ever. So far, it's bitcoin's second-worst quarter ever, after Q1 2018, and it will be the worst if the XBX drops below $29,341.81 at the close (8pm NY on Wednesday).
The Investor’s Perspective on the Bitcoin Taproot Upgrade: Taproot is a bundle of three upgrades that are aimed at improving network security, privacy and scalability. It poses some potential drawbacks to Bitcoin including risks of low adoption, unintended privacy shortcomings and Bitcoin community disappointment and fracturing. In a new report, CoinDesk Research gives an overview of what Taproot is, its risks and potential benefits. Download the full report.
Stablecoin borrow rates on Aave and Compound are now as low as they were in December 2020. TAKEAWAY: Demand is down for leveraged cryptocurrency bets using borrowed stablecoins.
Cryptocurrency exchange FTX in the same week announced "tokenized stocks" (synthetics that track equities) and a sponsorship deal that will put their logos on umpires' uniforms at Major League Baseball games. TAKEAWAY: The bulk of FTX's revenue, and its most innovative product development, take place offshore, but it is spending sports advertising dollars in the U.S., where it operates a subsidiary, FTX.US. A useful analogy (via CoinDesk TV earlier this week) is how alco-pop products like Smirnoff Ice allowed hard-liquor brands to become huge advertisers on sports TV.
A message from CoinDesk We've launched on Snapchat. On our debut show, "CoinDesk Breaks It Down," we distill the noise around dogecoin, the energy debate and more. Follow for original content, twice weekly.
Podcast episodes worth listening to: Never Break the (Block) Chain: Advancing the Dream of Interoperability – Michael Casey and Sheila Warren, Money Reimagined. John McAfee and the End of Crypto's Gonzo Era – Nathaniel Whittemore, The Breakdown. Luck or Skill? Allnodes' CEO Spills the Beans About Eth 2.0 staking – Christine Kim and Ben Edgington, Mapping Out Eth 2.0.
A message from Coindesk EIP 1559: Ethereum's Fee Market Upgrade Explained CoinDesk Research's newest report dives into the economic impacts and investment implications of Ethereum Improvement Proposal (EIP) 1559. At its core, the code change is designed to make transaction fees on Ethereum less volatile and more predictable. At the same time, EIP 1559 also poses several risks to Ethereum including risks of miner capitulation or revolt, technological risk in the form of unexpected bugs, and risk of user disappointment. In this report, CoinDesk Research gives an overview of how EIP 1559 works and its intended impact for investors, miners and users.
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