Blockchain Bites: Crypto Market Cap Drops Below $1T as Dollar Gains

Bitcoin shaved off a clean 20% in trading early Monday, having failed to establish itself above $40,000. The index of all the crypto assets came down with it, with analysts calling the decline a healthy correction for an overheated market.

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

Top shelf

JPMorgan says...
A bitcoin exchange-traded fund (ETF) might depress bitcoin’s price in the short term, if approved, by putting pressure on Grayscale’s Bitcoin Trust (GBTC), currently the most popular way for Wall Street firms to gain exposure to bitcoin, which comes with a heavy premium. Long term, a bitcoin ETF would be positive for the ecosystem – but first the SEC has to sign off. (Grayscale is owned by CoinDesk parent DCG.)

Block none?
Dan Larimer has left Block.one, the company behind the EOS blockchain that raised $4 billion in a 2017 initial coin offering. The former chief technical officer and co-founder Larimer said he will pursue personal projects including building censorship-resistant technologies, adding specifically the EOS-attached social platform “Voice is not immune from the censorship pressure” seen in recent weeks.

Mining reset
Bitcoin’s mining difficulty reset last week at a record high. According to the tea leaves, it’s now 11% harder to mine bitcoin than it was in the last difficulty cycle, a programmatic accounting of power contributed to secure the Bitcoin network. “A new difficulty all-time high is no surprise considering mining revenue has tripled in recent months,” said Edward Evenson, business development lead at Braiins, a mining software company.

Quick bites

• BAKKT SPAC: Bitcoin exchange Bakkt to go public through a SPAC merger, with an estimated $2.1 billion valuation. (CoinDesk)
• ROADBLOCK? Why CoinDesk’s Bailey Reutzel had to spend hours trying to buy $100 in BTC. (CoinDesk op-ed)
• SHENZHEN TEST: The Agricultural Bank of China is reportedly trialing digital yuan functionality on ATMs. (CoinDesk)
• TETHERING: Scaling solution Hermez Network adds tether to tackle high gas fees. (CoinDesk)
• BITCOINER RESTAURATEUR: Two bars in NYC are for sale, if you have the BTC or ETH. (CoinDesk)
• SELL STOCK, BUY BTC MINERS: Publicly traded Chinese sports lottery firm 500.com wants to purchase $14.4 million of mining machines, also issues and sells stock. (CoinDesk)
• UNLEVERAGED? European eToro traders call foul over closure of leveraged crypto contracts. (CoinDesk)
• TETHER MINTS: Record two billion USDT in one week. (CoinDesk)
• BURNS OUTPACE: Mints for wrapped bitcoin (WBTC) for the first time in December. (CoinDesk)
• DEFI GOVERNANCE: Proposal seeks to overhaul Aave’s $375 million Safety Module. (Cointelegraph)

Market intel

Inverse relationship
Bitcoin slumped below $33,000 in early Monday trading, just as the U.S. dollar appeared to make gains. The Dollar Index, which tracks the greenback’s value against major currencies, is at two-week highs near 90.50 (up from a 33-month low of 89.21 set Jan. 6), according to CoinDesk’s Omkar Godbole. Some see the inverse relationship between BTC and USD as a sign of bitcoin’s maturation as a macro asset.

At stake

Sell-off
With prices dropping by double-digit percentages across nearly all crypto assets, the total crypto market cap shed some $156.8 billion in the past 24 hours, according to Messari data, and stands around $867 billion at press time. This comes just five days after the crypto market table crossed the $1 trillion level for the first time.

There isn’t yet a clear consensus cause for a nosedive in assets like bitcoin, ether, xrp and other large-cap cryptos. Analysts are pointing to over-levered market conditions, increased selling from bitcoin miners and growing bearish sentiment in traditional markets during a period of political instability in the last weeks of U.S. President Trump’s tenure.

There are some visible cues on the bitcoin blockchain that help piece together the story as it was unfolding. Crypto trader @lightcrypto pointed to one Coinbase sell order for 180 BTC (a multimillion-dollar sale) that preceded a $1,200 drop, CoinDesk’s Omkar Godbole wrote.

Crypto is not the only market where individual sellers and buyers can have such a pronounced impact on price. The history of the stock market is punctuated by stories of short sellers, companies cornering markets and manipulating prices as well as panic selling and bad decisions.

There’s the story of two commodities traders who cornered the onion market in the 1950s. That market manipulation caused prices to crater and led to the Onion Futures Act, which bars futures speculation on onions as well as "motion picture box office receipts.”

More recently, in March 2020, during the early days of the coronavirus pandemic, a writer in Forbes wrote about how bearish billionaire investor Bill Ackman’s emotional CNBC interview caused one of the largest sell-offs in economic history.

“Hell is coming,” Ackman reportedly said on live broadcast. “Shut it down now,” he said of the economy. “There is a tsunami coming.” The Dow Jones Industrial Average tanked over 1,000 points while he was on the air, triggering a circuit breaker. Forbes reported Ackman took out “doomsday hedges” to short sell the market in January.

During this coronavirus-induced market rout, media companies and analysts pointed to Warren Buffett’s sage advice, proffered in a 2017 shareholders letter, that downturns are inevitable. As an investor for the long term, Buffett said the best move is the easiest: buy and hold. He quotes Rudyard Kipling's "If":

If you can keep your head when all about you are losing theirs ...If you can wait and not be tired by waiting ...If you can think – and not make thoughts your aim ...If you can trust yourself when all men doubt you ...Yours is the Earth and everything that’s in it.

Still, crypto’s volatility can be painful. This market drop, seemingly out of the ether (not the crypto), is the largest intraday loss since March, CoinDesk’s First Mover notes.

It’s why government bodies, like the U.K.’s Financial Conduct Authority (FCA), are taking steps to protect retail and smaller investors. Last week, a long-simmering ban on leveraged derivatives products went into effect, while today, the watchdog issued a statement highlighting the risks of investing in crypto.

“Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money,” the agency said. Investors could lose “all their money.”

During the run-up, many bitcoin bulls pointed to changing conditions indicating the sustainability of a rally to a high around $42,000. Institutional investors and corporations loaded up on the inflation hedge, contributing to the growing sense of bitcoin’s role as “digital gold.”

Many haven’t lost the faith. Though as Guggenheim Investments Chief Investment Officer Scott Minerd succinctly said: it might be “Time to take some money off the table.”

Who won #CryptoTwitter?