Market Wrap: Bitcoin in Pullback Mode as Regulatory Concerns Rise

Market Wrap: Bitcoin in Pullback Mode as Regulatory Concerns Rise

Bitcoin is declining as regulatory concerns rise; ether is holding support.

Bitcoin extended its pullback on Tuesday as buyers continue to take profits from the $40,000 resistance level. The cryptocurrency was trading around $38,000 at press time and is down about 4% over the past week. Ongoing regulatory concerns in the U.S. and China have kept some bitcoin buyers on the sidelines, with lower support seen around $34,000 to $36,000.

“We expect the pullback to mature in one to two weeks near the 50-day moving average around $34K, after which bitcoin is likely to clear $42.6K for a revised upside target near $51K,” wrote Katie Stockton, managing director of Fairlead Strategies, in a Monday newsletter.

Latest prices


Traditional markets:

  • S&P 500: 4423.3, +0.82%
  • Gold: $1810.4, -0.13%
  • 10-year Treasury yield closed at 1.181%, compared with 1.173% on Monday

Ether in the lead

Ether, the world’s second-largest cryptocurrency by market cap, has broken out of a two-month consolidation relative to bitcoin. The ETH/BTC ratio faces initial resistance near 0.07, and a decisive break above that level could yield further upside towards 0.08.ETH could find support around $2,300 to $2,400. “If ETH successfully holds above support, we expect upward momentum from the current move toward a proof-of-stake Ethereum 2.0 to push for a retest of the all-time high (around $4K),” wrote QCP Capital in a Telegram chat. 

Some ether bulls are also enthused about the Ethereum blockchain’s upcoming London hard fork, an upgrade expected later this week that’s expected to reduce the network’s net issuance of new units of the cryptocurrency.

“We are less optimistic about BTC and we think that upside on BTC might be capped in the near term,” QCP wrote.

Bitcoin futures contango

“Last week’s short squeeze led a large contango to open in the futures market, but as bitcoin failed to break out from its range the contango has declined in recent days,” wrote Arcane Research in a Tuesday newsletter.

Contango is a term used to describe bullish arbitrage, which occurs when the bitcoin futures price is higher than the spot price. Since April, bitcoin’s contango has narrowed as bullish sentiment waned.

“The CME contango remains substantially below the unregulated exchanges, suggesting that the institutional investors remain more cautious than the crypto native traders,” Arcane wrote.

The growing contango could also suggest an accumulation of leveraged long positions, albeit slightly lower over the past week. “Be wary of potential long squeezes if bitcoin fails to find support above $37,000,” Arcane wrote.

Chart shows bitcoin rolling annualized 3-month basis across exchanges.

Exchange outflows

A significant amount of bitcoin has flowed out of exchanges over the past week, which could indicate investors’ preference to hold rather than sell positions.

“The exchange net position change metric maps out the monthly rate of coins flowing in (green) or out (red) of all exchanges,” wrote Glassnode in a Monday newsletter. “This week we have seen an extremely large volume of coins flow out of exchanges, comparable to the peak outflows seen in November 2020.”

Chart shows bitcoin net position change across exchanges.

Stablecoins in the spotlight

The amount of the stablecoin gemini dollar (GUSD) on exchanges has seen a sharp decline recently, which may imply an ongoing rise in bitcoin’s price, according to a chart by Mignolet on CryptoQuant. In 2018, when the downward trend of bitcoin price was reversed, GUSD saw a drop in its amount.

GUSD amount on exchanges vs. bitcoin price

Meanwhile, the combined market cap of the largest two stablecoins, USDT and USDC, is approaching $90 billion, while the market cap of USDC increased sixfold since the beginning of the year, according to Skew, a data provider.

Stablecoin market cap

Tether frequency

The tether stablecoin’s daily usage on Ethereum has shifted slightly later in the day from Asian business hours toward European and U.S. market hours, possibly a result of China’s recent crackdown on cryptocurrency trading and USDT users’ migration to other blockchains from Ethereum, a new report suggests.

In 2020, most USDT activity on Ethereum happened between 2:00 and 14:00 coordinated universal time, while the period from 6:00 to 8:00 UTC was the busiest, according to the report by blockchain-analysis firm Coin Metrics. However, in 2021, there has been less usage during 2:00 and 6:00 UTC, and more during 15:00 to 20:00 UTC.Investors can trade crypto 24 hours, seven days a week but local stock exchange times can be used as a proxy for when traders in any given region are active. The trading hours of the Hong Kong stock exchange, London Stock Exchange and New York Stock Exchange are 1:30 to 8:00 UTC, 8:00 to 16:30 UTC and 14:30 to 21:00 UTC, respectively.

Chart shows USDT usage on Ethererum. Darker shades indicate more intensive trading activities. The usage pattern has shifted slightly later in the day in 2021.

Altcoin roundup

  • SEC chairman on crypto oversight: U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said he believes the vast majority of crypto tokens and initial coin offerings (ICOs) violate U.S. securities laws. In a speech at the Aspen Security Forum on Tuesday, Gensler said he agreed with Jay Clayton, his predecessor at the SEC, who once famously said that in his view, “every ICO I’ve seen is a security.”
  • Biggest DAOs hold $6B worth of digital assets: The 20 largest decentralized autonomous organizations (DAOs) hold $6 billion worth of digital assets, according to the latest DeFi report from ConsenSys, an Ethereum software company. The biggest DAOs include decentralized finance (DeFi) projects such as Compound, Uniswap, Bankless and public-funding entities such as Gitcoin.
  • Bitwise launches crypto funds for aave and uniswap: Bitwise Investments is adding two funds for decentralized finance (DeFi) protocol tokens – AAVE and UNI – to its lineup of institutionally-focused investment vehicles. The new funds by the California-based manager will invest directly in one of two large-cap tokens: AAVE, of the non-custodial lending protocol; and UNI, from the decentralized exchange Uniswap. Both are the largest DeFi protocols of their type.

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