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10.04%Market Wrap: Bitcoin Rises After Volatile Week
Analysts see the possibility of further selling pressure despite short-term relief.
Cryptocurrencies traded higher on Friday after a volatile week. Bitcoin was holding above $33,000 support at press time and is roughly flat for the week. Technical charts suggest buyers will remain active above $30,000, although upside momentum is starting to slow heading into the weekend.
STORY CONTINUES BELOW
“The possibility of price action dropping into the mid-$20,000 range is alive, but traders looking for a retest of previous all-time highs will likely be disappointed,” Sean Rooney, head of research at crypto asset manager Valkyrie Investments, wrote in an email to CoinDesk.
Latest prices
Cryptocurrencies:
Traditional markets:
- S&P 500: 4369.55, +1.13%
- Gold: $1808.4, +0.31%
- 10-year Treasury yield closed at 1.358%, compared with 1.297% on Thursday
“The May price drop was dramatic, whereas the on-chain reaccumulation of the bitcoin sold in that downturn into longer-term holders has occurred throughout eight weeks of sideways price action,” Rooney wrote. “This sets up well for an end-of-summer rally heading into the fourth quarter.”
Bitcoin shorts pile up
More than 5,000 bitcoin shorts were added on the Bitfinex exchange on Thursday. “When shorts close their positions, they do so by going long to offset their short exposure,” tweeted Delphi Digital.
The recent buildup in shorts is still below peak levels in June, which suggests pessimism could continue as bitcoin remains in an intermediate-term downtrend that began in April.
Eventually, extreme pessimism could lead to a short squeeze as buyers respond to oversold conditions, fueling a price rally.
Ruffer sold bitcoin on signs of froth
Ruffer Investments, a U.K. investment manager, booked a $1.1 billion profit from a bitcoin investment in five months. “So, what’s changed? The price,” Duncan MacInnes, investment director at Ruffer, wrote in a Friday blog post.
“Last November, we gained exposure to bitcoin,” MacInnes wrote. “We viewed it as an option on an emerging store of value with a highly skewed and attractive risk/reward profile.”
However, retail speculation and peak liquidity indicated frothy market conditions earlier this year, which prompted Ruffer to sell all of its bitcoin exposure in April.
Bitcoin vs. commodities
In recent weeks, bitcoin’s correlation with the S&P 500 has started to rise, while the correlation with commodities continues to fall. That divergence could make bitcoin attractive for investors looking to diversify exposure across equities, commodities and cryptocurrencies.
Mike McGlone, commodity strategist at Bloomberg Intelligence, expects bitcoin to outperform Brent crude oil this year.
“The relative discount in the bitcoin price vs. the premium in crude oil may show that technicals and fundamentals are aligned for resuming the upward trajectory in the ratio,” McGlone wrote in a Thursday report.
“Akin to similar conditions at the end of 2016, we see the bitcoin-to-crude ratio well poised to resume its uptrend, especially if a new low in relative bitcoin volatility at the end of 2020 is a guide.”
Traders sells “strangles” as bitcoin goes quiet
Though bitcoin has gone comatose in a narrow range above $30,000, less than half the all-time high reached just two months ago, some options traders are busy as ever, taking relatively high-risk strategies to profit from the cryptocurrency’s continued price consolidation.
One of those strategies involves putting on “short strangles,” essentially a bet that bitcoin’s price won’t break out anytime soon.
“Our favorite trade continues to be short BTC strangles within the $30,000 to $40,000 range,” Singapore-based QCP Capital said in a Telegram post on June 30. “With psychological resistance at $40,000 and strong support at $30,000, there’s a good chance that BTC trades in this $10,000 range in the near future, which would likely cause implied volatility to collapse.”
Short strangles involve selling out-of-the-money (OTM) call and put options with the same expiration dates. OTM calls are ones at strike prices higher than bitcoin’s current level, while OTM puts have strikes lower than bitcoin’s going price.
USD Coin's potential
USDC, the second-largest stablecoin by market cap, has the potential to become “the most widely used iteration of the U.S. dollar,” Mati Greenspan, CEO and founder of Quantum Economics, wrote in a note, after the currency’s backer, Circle, announced its plan to go public.
“At the moment, there is only one that is widely circulated and is compliant with all known U.S. regulations, and that's USD coin,” Greenspan wrote.
USDC is gaining more shares as the stablecoin industry grows fast. Meanwhile, some of the top decentralized finance (DeFi) sites provide higher yields for staking the largest stablecoin USDT than USDC.
“Even though tether is more readily available and more liquid, USD coin is just seen as a more stable investment vehicle,” Greenspan wrote.
Altcoin roundup
- EOS price hike: The price of EOS surged 20.3%, after its creator, Block.one’s unit Bullish, announced its plan to go public on the New York Stock Exchange through a merger with Far Peak Acquisition Corp., a special purpose acquisition company (SPAC). Bullish is planning to launch a cryptocurrency exchange, while the deal will value the combined company at $9 billion.
- Growth in Euro Stablecoins: As the circulating supply of euro-pegged stablecoin EURS tokens more than doubled this year to nearly 80 million, some token issuers are picturing a future of foreign exchange markets on digital rails. However, challenges remain with financing and regulations.
Relevant news
- Why China’s Ban on Crypto Mining Is More Serious Than Before
- Survey Suggests Most Salvadorans Wary of Bitcoin as Legal Tender
- BIS, IMF, World Bank Say Central Banks Must Consider Cross-Border Implications of CBDCs
Other markets
Most digital assets on the CoinDesk 20 ended up higher on Friday.
Notable winners as of 21:00 UTC (4:00 p.m. ET):
eos(EOS) +15.14%
algorand (ALGO) +3.42%
the graph (GRT) +1.81%
Notable losers:
nucypher (NU) - 3.65%
chainlink (LINK) -2.55%
aave (AAVE) -2.19%
Damanick Dantes
Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.
