Market Wrap: Bottom Has Not Been Reached for Crypto, but Capitulation Is Needed

Bitcoin’s (BTC) price fell back to a low of $20,755 on Thursday. It got close to $23,000 after U.S. Federal Reserve Chair Jerome Powell reassured investors Wednesday the central bank is committed to its current monetary hawkishness. He spoke at a press conference after the Fed raised interest rates by 75 basis points.

Similarly, SOL and DOGE, which both had the highest gains by rising as much as 16% during the rally, fell back to the levels they held prior to Powell’s comments.

The same scenario occurred after the Fed’s previous meeting in May. At that time both stocks and crypto rallied during Powell’s post-meeting press conference when he explained that rate hike. The reality check came the next day.

Bitcoin came close to hitting $20,000 in the past 24 hours, a threshold that could potentially trigger large liquidations. But this likely isn’t the bottom yet, said Apifiny CEO Haohan Xu, given the lack of bullish sentiment and worsening liquidity.

“With the rate hike, we will actually see decreasing yield in the crypto space across all assets,” he wrote in a note. “Borrowing has been very important for anyone participating in the crypto market, whether it's traders trying to profit from contango or market makers trying to arbitrage across exchanges.”

In contango, a commodity’s futures price exceeds its spot price. Xu noted, “With the fading contango and the narrowing spread in the crypto market recently, institutions see less incentive in running those strategies and thus have less need to borrow. All of the above combined with the general market condition will force high yield providers to cut rates to a much lower level."

Billionaire investor and "Shark Tank" host Kevin O’Leary told CoinDesk TV's "First Mover" Thursday the crypto market hasn’t hit bottom yet, but capitulation is needed and is “a good thing” before crypto can see another, longer-term rally. Capitulation describes the dramatic surge of selling pressure in a declining market or security that marks a mass surrender by investors.

Latest prices

●Bitcoin (BTC): $20991, −3.71%

●Ether (ETH): $1109, −6.06%

●S&P 500 daily close: 3,666.77, −3.25%

●Gold: $1855 per troy ounce, +2.20%

●Ten-year Treasury yield daily close: 3.31%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Sell the Ethereum Merge

By Andy Edstrom

Many market participants think the highly anticipated Ethereum Merge, when the blockchain moves to a proof-of-stake consensus method, will be bullish for ETH. The opposite is more likely.

People tend to get excited about the prospects of these sorts of widely anticipated developments and think they will usher in price gains. But such occurrences tend to be “sell the news” events.

The Merge has two possible outcomes: Either it works or it doesn't. If the Merge doesn't work, that seems unlikely to be good for the price of ether. But if it does work, that also seems unlikely to be good for the price of ETH because a proof-of-stake-based ETH will now directly compete for investor/speculator market share against the panoply of other major proof-of-stake-based digital assets.

I have no idea whether the dollar price of ether will go up or down between now and when the Merge happens. And I have no idea whether the Merge will happen at all, considering that it's been delayed for so many years. But if I read the news one day, and it says the Merge has happened, I expect that news to be sellable.

Read the full story here.

Altcoin roundup

• Inverse Finance exploited: Ethereum-based decentralized finance (DeFi) tool Inverse Finance was exploited for more than $1.2 million worth of cryptocurrency on Thursday morning, on-chain data appears to show. Exploiters seemed to use a flash loan attack to trick the protocol and steal more than 53 bitcoin, worth $1.1 million, and 10,000 tether (USDT), a stablecoin backed on a 1-1 basis with U.S. dollars. The exploit comes just over two months after attackers stole $15 million worth of cryptocurrencies from Inverse Finance in a similar attack, as previously reported. Read more here.
• Circle to launch Euro Coin: Circle, the firm behind the second largest stablecoin USD coin (USDC), is set to introduce a euro-backed stablecoin by the end of June. The euro coin (EUROC) will be fully backed by euro-denominated reserves held by U.S. regulated financial institutions. However, it is unclear how a euro-backed stablecoin issued under U.S. standards might be perceived by European Union leaders, who are preparing a comprehensive legislation for digital assets including stablecoins. Read more here.

Relevant insight

• Major Banks Urge Rethink of European Union's CBDC Plans: The European Commission should stop focusing on technical details and discuss whether to issue a digital euro at all, the Institute of International Finance said.
• How Crypto Lender Celsius Overheated: Celsius rapidly became more brazen in its attempts to generate yields, using decentralized lending protocols and aggregators to juggle around client funds for the best return.
• Texas, Other States Open Investigation Into Celsius Network Following Account Freeze: The Texas State Securities Board (TSSB) has been targeting the lending platform for nearly a year.
• Finblox Imposes $1.5K Monthly Withdrawal Limit Amid Three Arrows Capital Uncertainty: The firm said it intends to evaluate the impact of Three Arrow Capital on liquidity.
• US Treasury Secretary Talks Crypto With Bank Chiefs: While Secretary Janet Yellen prepared to meet with Wall Street banking CEOs, an official from the Treasury Department said the crypto market turmoil shows a need for regulations.
• Russia's Gazpromneft and BitRiver Partner to Develop Crypto Mining Operations: The oil-producing subsidiary of state-owned natural gas giant Gazprom will provide energy to data centers set up by BitRiver.

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

Asset Ticker Returns DACS Sector USD Coin USDC +0.0% Currency Tether USDT +0.0% Currency

Biggest Losers

Asset Ticker Returns DACS Sector Cosmos ATOM −7.4% Smart Contract Platform Gala GALA −7.4% Entertainment Polkadot DOT −6.7% Smart Contract Platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.