Crypto Corner - Summary of the Week 12/07/2021


Written by: Yves, Head of Trading at Wirex

The Bitcoin price (BTC/USD) is again facing its $30,000 support this week as it lost nearly 7% of its value. The Ether price also tumbled back below the $2,000 level. The two main cryptocurrencies are at their worst levels since June 27th.

The market is anticipating a large selling pressure from the Grayscale Bitcoin trust (GBTC) as investments equivalent to 40,000 BTCs will be unlocked in the coming weeks. The market impact of this event is still uncertain, but the largest part of these 40,000 BTCs will unlock as soon as Sunday. Indeed, the six months lock up period of a net 16,240 BTCs invested back in January 18th will expire then, letting investors potentially unwind their positions on the next business day.


Grayscale Bitcoin Trust Flows - source: bybt.com

An unwind of the 16,240 BTCs at current levels would incur for the investor(s) a 35% loss. This loss is nearly 20% worse than the BTC/USD price correction observed since January 18th. This poor performance is explained by the GBTC share quoting at an 11.57% premium over the Bitcoin’s market price at the time of investment, while it is now priced with a 15.24% discount.The performance certainly questions the investors intentions about whether they would realise their losses, or wait for more favourable market conditions.

Better market conditions may take some time to materialise given the adverse macroeconomic outlook: inflation climbed higher than expected in June. The 4.5% jump of the CPI figure announced on Monday (ex-food and energy prices) is the largest since September 1991. The current monetary policy is unequivocally inflationist. The Fed is still buying $40 billion worth of mortgage-backed (MBS) and $80 billion worth of treasury securities each month, and there is no clear plan to stop. Despite the surprise jump of the June inflation figure to 5.4%, Fed’s Chairman Jerome Powell believes that it is too soon to reconsider the Central Bank’s support for the economy. He is still looking to confirm whether the jump is only temporary, or a strong indication of a persistent inflation above the long-term 2% target rate.

Another reason for the Fed’s reluctance to start tightening its monetary policy comes from the labor market supply. Jerome Powell mentioned that ‘even after this supply comes, it is still likely that we will still be short of maximum employment (…)’. Last but not least, raising interest rates too soon could hurt a potential recovery when the threat of the Delta variant is still looming.

The Fed raised its inflation estimates for 2021 a month ago, and forecasted two interest rate hikes by late 2023. A tighter policy would slow down investment. And the market is likely expecting a tight policy to be implemented faster as the CPI figure sent the Equity markets lower (Dow -0.31%, S&P 500 -0.35%), together with the crypto markets (BTCUSD -3.4%, ETHUSD: -4.9%) on the announcement date.

The low cryptocurrency volumes exchanged this week, and the continued regulatory pressure suffered by retail exchanges and projects, are both weighing on prices. Binance eventually stopped selling today its ‘stock tokens’, mentioning that ‘Users who currently hold [any] may still sell or hold them over the next 90 days’. The first cryptocurrency exchange is now targeted by the Italian regulator: Consob warned yesterday that ‘that the companies of the “Binance Group” are not authorised to provide investment services and activities in Italy’.

Regulation is an essential milestone for the sector that is reasonably expected to make more victims among the centralised entities of the crypto-economy. However, the spirit behind these regulations would seem rather constructive if we consider Jerome Powell’s words regarding stablecoins Wednesday:

We have a pretty strong regulatory framework for bank deposits for example, or money market funds (…) That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe…then we need an appropriate framework, which frankly we don’t have.

data taken at 09:56 am 16/07/2021 - coinmarketcap

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The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.
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