First Mover: Bitcoin Flushes 'Weak Hands' as Ethereum Hits New All-time High

January 25, 2021

Everything you need to make sense of the crypto markets and beyond

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By the CoinDesk Markets Team

Edited by Bradley Keoun

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Bitcoin (BTC)

+5.8% $34,157

Ether (ETH)

+3.1% $1,434

(Price data as of Jan. 25 @12:52 UTC)

TODAY:

Price Point: Bitcoin was higher, around $34K, as ether shot to a new all-time high.

Market Moves: Last week's rout in the bitcoin market looks to veteran crypto analysts like "weak hands" selling out – especially since bidders appeared to materialize whenever prices fell to $30K.

Bitcoin Watch: Shift away from buying during North American daytime trading hours might signal slackening in institutional demand, CoinDesk's Omkar Godbole writes.

What's Hot: Huobi executive taken into custody in OTC probe, Chainlink's LINK tokens surge to new record, Valkyrie joins bitcoin ETF race, CNBC's Jim Cramer urges Powerball winner to put money into bitcoin, Biden faces resistance on stimulus.

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Price Point

Bitcoin 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, 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 Ethereum, we could see investors move capital into the latter as they look for the next cryptoasset that is going to perform in the current bull run," David Derhy, an analyst with the trading platform eToro, said in emailed comments.

Read More: Big Investors Stacked up Ether as Price Rose to Record High

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

Market Moves

Bitcoin (BTC) 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 during which 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."

Chart going back to start of 2019 showing bitcoin's biggest weekly sell-offs (TradingView/CoinDesk)

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 that 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

Chart showing bitcoin's performance during U.S. and Asian trading hours (QCP Capital)

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 USD 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

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Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.

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