Written by: Yves, Head of Trading at Wirex
The Bitcoin price (BTC/USD) started the week in the red, losing nearly 3% on Monday and 3.4% on Tuesday. Shares of the Grayscale Bitcoin fund (GBTC) representing holdings of nearly 16,200 BTCs have been unlocked. But the correction that many feared hasn’t really happened yet.
As explained last week, there is no interest for the concerned GBTC investors to sell their investment at a 35% loss. More likely, the unlock would set further resistance on the upside, above the $40,000 level, as these investors could seek to unwind a portion of their holdings at little or no loss.
In fact, the early week’s price correction followed a large Bitcoin net inflow to exchanges that was observed on Saturday: a net amount of 28,700 BTCs was sent by whales to exchanges. It is the largest netflow since February 21st according to Cryptoquant. These deposits contributed to increased market selling pressure, and eventually drove the Bitcoin price below $30,000 for the first time since June 22nd.
Source: Cryptoquant - BTC All Exchanges Netflows - it is the difference between BTCs flowing into major exchanges with BTCs flowing out of exchanges.
The BTC price correction observed on Tuesday (-3.4%) happened after the five billion worth lending platform BlockFi received a ‘cease and desist’ notice from the State of New Jersey. BlockFi sent a series of four tweets stating that it ‘received [the] order from the New Jersey Bureau of Securities regarding Interest Account (BIA) operations in the State of New Jersey. (…) calling (…) to stop accepting new BIA clients residing in New Jersey beginning July 22, 2021’.
The Bureau of Securities of the State of New Jersey considers that BIAs are unregistered securities: BlockFi sells BIAs to its clients for a deposit of eligible cryptocurrencies. The accounts pay interests up to 7.5% APY on a monthly basis and the interest can be adapted at BlockFi’s discretion every month. But a BIA is not the typical savings account that a Bank would extend to its customers because it entails a much higher credit risk and it is not insured by the FDIC.
As mentioned in the ‘cease and desist‘ order issued by the regulator, BlockFi sold BIAs for $14.7 billion worth of cryptocurrencies by the end of March. The size and centralised nature of BlockFI made it an easy target for the State’s regulator. The regulators of the states of Alabama and Texas also followed, considering that BIAs are not accounts, but rather investment products and securities. The Texas State Securities Board (TSSB) shared the notice with Coindesk. The document states (point 21) that BIAs are not insured by the FDIC, nor protected by the Securities Investor Protection Corporation. The TSSB clearly states that it considers BIAs as securities, and that the Money Service Business license (MSB) that BlockFi holds does not cover the sale of securities in Texas:
‘Based on the information and allegations set forth herein, the BIAs constitute investment contracts, notes, or evidences of indebtedness regulated as securities as that term is defined by Section 4.A of the Securities Act’
The BTC price reached a low of $29,296 on Tuesday. Fuelling speculations that DeFI projects would be targeted next by regulators, the price of DeFi governance tokens also corrected, increasing Monday’s significant losses. Ether also reached a low of $1720 for the fourth time since the severe correction of May. But all prices found strong support again and bounced back with Bitcoin the very next day, wiping out the early week’s losses: AAVE (+16%), UNI (+14.7%).
The Bitcoin price jumped by 7.9% on Wednesday after Elon Musk said during a B-word live session with Cathy Wood (Ark’s investment) and Jack Dorsey (Twitter and Square), that he and SpaceX also own Bitcoin (time: 7:25 of the session).
Elon Musk also said that Tesla would resume accepting Bitcoin for payment given that there is a positive environmental trend supported by the price drop, and that the energy used to mine BTCs is shifting to renewables after China’s regulatory crackdown forced many environmentally unfriendly miners to shut down.
Although Elon Musk recognised that Bitcoin is evolving, he still tends to focus on the drawbacks of high transaction costs and negative environmental impact, in contrast with his co-speakers: Cathy Wood explained the macro advantage of holding Bitcoin as a store of value; and Jack Dorsey the advantage for business in continents like Africa where the unbanked could rely on a financial system that is built around the first cryptocurrency. It felt like Elon Musk had more of a technological and short term market focus. In his answers, he mentioned that he holds ‘a bit of Ethereum and Dogecoin’, and that he ‘might pump but he doesn’t dump’ (time 20:16 of the session). Explaining his Dogecoin’s investment (DOGE), said that ‘The most entertaining outcome is the most likely one’. Freedom and fun are certainly key drivers of technology, as they were in the early days of the internet.
data taken at 10:25 am 23/07/2021 - coinmarketcap
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.