First Mover: Cryptocurrency Euphoria Hits Breaking Point as Miners Lose Nerve

January 11, 2020

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)

-12% $33,516

Ether (ETH)

-17% $1,041

(Price data as of Jan. 11 @12:07 UTC)

TODAY:

Price Point: What goes up, must come down. Bitcoin prices go into full retreat after staggering rally to new all-time high, dragging down the entire cryptocurrency sector.

Market Moves: U.S. securities regulators' claims against Ripple Labs haven't proven fatal to the XRP tokens used in the company's payments network; XRP still trades at a market capitalization nearly equivalent to Ford Motor Co.'s stock-market value.

Bitcoin Watch: Blockchain data appear to show bitcoin miners moving to liquidate some of their hoard, apparently motivated by record price levels to take profits.

What's Hot: Dan Larimer leaves Block.one, Tron-owned livestreaming platform criticized for role in U.S. capital invasion, eToro moves to slow overwhelming client growth, Bank of America strategist calls bitcoin "mother of all bubbles."

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Price Point

The recent euphoria in cryptocurrencies morphed into a severe sell-off, as bitcoin prices dove 12% on Monday, which would be the most for a single calendar day since March.

Prices for the largest cryptocurrency had soared last week to an all-time high of $41,962, and that level was apparently sufficient to prompt some cryptocurrency miners to take profits. Declines were broad-based across digital-asset markets, with ether (ETH), XRP (XRP), litecoin (LTC) and cardano (ADA) suffering declines in the double-digit percentages.

"Time to take some money off the table," Scott Minerd, chief investment officer of the Wall Street firm Guggenheim, tweeted early Monday. In December, Minerd predicted that bitcoin prices should be worth $400,000. "Bitcoin's parabolic rise is unsustainable in the near term."

Yves Renno, head of trading at Wirex, told First Mover in emailed comments that he "would expect a period of very high volatility."

The retreat in cryptocurrencies came as investors in traditional markets also turned more cautious, amid speculation over how the final days of U.S. President Donald Trump's tumultuous four-year term might play out. Asian and European shares slid and U.S. stock futures pointed to a lower open. The U.S. dollar rose against major currencies and gold strengthened 0.1% to $1,850 an ounce.

Read More: Bitcoin’s Big Drop Again Coincides With Dollar Bounce in Forex Markets

Market Moves

The long arm of U.S. regulation and law enforcement might have limited reach when it comes to global cryptocurrency markets.

That could be one takeaway from the recent trading action in the digital token XRP, which until recently was the third-biggest virtual asset after bitcoin and Ethereum's ether.

Prices for XRP plunged 67% in December after the U.S. Securities and Exchange Commission accused the San Francisco-based payment-technology company Ripple Labs of violating federal laws when selling $1.3 billion of the tokens over a seven-year period.

Yet some traders apparently believe that the XRP tokens now represent an attractive value, reports CoinDesk's Muyao Shen. On Sunday, they changed hands at about 28 cents, up some 30% year-to-date.

Simons Chen, a crypto trader based in Hong Kong, told Shen he bought XRP as prices bottomed out in December, seeing a great opportunity to “buy the dip,” in Wall Street parlance.

XRP price chart showing plunge in December followed by rebound in January. (CoinDesk)

The SEC's suit has prompted cryptocurrency exchanges including Coinbase, Bitstamp, OKCoin and Bittrex to delist or suspend trading in XRP.

But far from entering a death spiral, the XRP market has shown surprising resilience, especially since three of the world's biggest cryptocurrency exchanges – Binance, Huobi and OKEx, all with roots in China – have continued to maintain pairings with the digital asset, Shen reported. There's been significant traffic in trades between XRP and the Korean won, as well as with tether (USDT), a dollar-linked stablecoin that's popular with Chinese traders.

“Unlike Coinbase or other ‘regulated’ exchanges, Korean and [other] Asian exchanges do not need to care that much of what the SEC does, and investors in Asia are less sensitive about the news,” said Sinhae Lee, partner at Shanghai-based blockchain consulting firm Block72.

The total market capitalization of XRP tokens currently stands at about $28 billion. That's a little shy of the automaker Ford Motor Co.'s $35 billion stock-market value and a little more than the U.S. bank and money manager State Street Corp.'s $27 billion.

"No one really knows what's going to happen to it," Denis Vinokourov, head of research for the crypto prime broker Bequant, said last week in interview. "It's still holding onto a decent market cap for a company that's supposed to be on its knees."

Read More: Asia’s Retail FOMO Could Be Behind XRP’s Rally Despite SEC’s Lawsuit

Bitcoin Watch

The bitcoin "miners' position index," a price indicator derived from blockchain data, had reached the highest since July 2019, a signal that cryptocurrency miners might be planning to liquidate some of their holdings. (CryptoQuant)

Bitcoin fell sharply early on Monday, after failing to establish a foothold above $40,000 over the weekend.

Over the past 24 hours, the cryptocurrency declined by more than $8,000 to $32,400, a drop of more than 20% from levels above $40,800 late Sunday.

“Hefty spot selling against an over-levered market caused the price drop,” trader and analyst Alex Kruger told CoinDesk, adding that it is unclear whether it was miner selling or macro traders liquidating positions.

Data provided by South Korea-based analytics firm CryptoQuant suggests miner selling did contribute to the price drop.

The 30-day average of Miners' Position Index – a gauge of how rapidly bitcoin miners are moving to liquidate inventories on cryptocurrency exchanges – rose to 2.20 on Sunday, the highest level since July 2019. A reading above 2.00 indicates miners are selling.

The index "looks enough to make a local top," CryptoQuant’s CEO Ki Young Ju tweeted Sunday. "They’re selling bitcoin.”

- Omkar Godbole

Read More: Bitcoin Plummets as Miners Sell Inventory, Spot Markets Panic

Bitcoin. DeFi. Ethereum 2.0. The biggest trends in crypto this year began to move the needle in the rest of the world. Multi-billion dollar funds bought bitcoin as an inflation hedge. Institutions began discussing the merits of decentralization. And the banking sector warmed to crypto.

CoinDesk’s 2020 Year in Review covers the major events, ideas and themes in crypto, and why they matter. The series is a comprehensive collection of op-eds, essays and interviews from some of the biggest names in crypto, published throughout the month.

Read more on how 2020 was crypto’s biggest year yet.

Token Watch

Wrapped bitcoin (wBTC): "Burns" outpaced minting in December, first time in project's history, as yields diminished in DeFi (CoinDesk)

What's Hot

Two NYC bars could be yours for only 25 BTC or 800 ETH, New York Post reports (CoinDesk)

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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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