The past week in crypto seems to have been no less eventful than the previous one, as the impacts of the FTX bankruptcy have spread to some prominent centralized lenders in this space, like BlockFi and Genesis Global Capital.
However, despite the compounding negative headlines, the price of bitcoin and ether have steadied at or around US$16,000 and $1,200, respectively. We explore some of the reasons behind this behavior, as well as dig into bitcoin technicals and discuss insights from our agency trading desk in this week’s commentary.
Also, please take a look at our Monthly Outlook: The Long Winter Gets Longer published on November 14 where we discuss how the recent events at FTX represent a setback for the industry that may come at the cost of an extended crypto winter.
Weekly Market Call
View replays of our weekly crypto market analyses from our Americas, APAC, and EMEA Coinbase Institutional teams, available here.
Market View
Market players continue to be fixated on possible contagion effects following the collapse of FTX. After crypto lender BlockFi announced plans to file for bankruptcy, Genesis Global Capital said that it had temporarily suspended both withdrawals and new loan originations in its lending division, although the trading arm is still operational. This further added to the liquidity pressures affecting the asset class, although centralized exchange Binance and market maker B2C2 offered to acquire some or all of Genesis’ US$2.8B active loan portfolio (based on its 3Q22 report).
Market depth has come down sharply in the last two weeks by anywhere between 20-60% for bitcoin depending on the exchange. As one gauge of the recent stress, the Grayscale Bitcoin Trust (GBTC) is currently trading at a 39.3% discount to NAV as of November 17 – not far from the low of 41.7% reached on November 10, but mostly because of a US$2.8M purchase by Ark Investment Management. This compares to a discount of 35.7% at the end of October. This partly reflects investor concerns that Grayscale Investments shares the same parent as Genesis – Digital Currency Group (DCG) (disclaimer: Grayscale Investments is a Coinbase client and funds are held in segregated cold storage with our qualified custodian).
On the upside, bitcoin prices have been oscillating around US$16,000 in recent days while ether is trading well above its June lows (which broke below $1,000). In fact ETH/USD is currently priced near $1,200, which we believe suggests many investors may still hold this as a core long-term position post-Merge.
There may be several reasons why prices are holding in despite the psychological impact that recent events have had on the crypto market.
- For one, BTC and ETH exposure on FTX’s balance sheet appeared to be relatively limited, which may have consequently limited the need for mass liquidations of these assets in recent days.
- Second, the cascading liquidations in May and June already wiped out much of the excess risk in the crypto market, leaving fewer levered positions to be unwound.
- Third, we think the recent performance of these assets may also reflect implicit recognition that the events at FTX were credit driven, not crypto driven in nature.
- Fourth, year-end redemptions were already likely part of the roadmap for many funds.
- Finally, the post-US CPI macro environment benefited risk assets across the board more broadly, which may have narrowed the drop given the positive setup for crypto markets prior to the downfall of FTX.
Solana stablecoins
The price of solana (SOL) continues to look vulnerable due to its association with FTX/Alameda in the wake of the ongoing bankruptcy, as well as long-standing concerns surrounding relatively frequent network outages (compared to other chains). Indeed, on November 17, the price of SOL fell by over ~8% vs USD in the span of under two hours. The selloff was seemingly triggered by a notification sent by Binance to its users stating that they were temporarily pausing deposits of USDC (SOL) and USDT (SOL) on the exchange.
While Binance indicated that the pause was associated with rudimentary wallet maintenance, we believe the announcement seemingly prompted other exchanges – including OKX and BitMEX – to mirror the actions of Binance and also pause deposits of stablecoins on the Solana network. In response, Circle (issuer of USDC) and Tether (issuer of USDT) both stated that the issuance/redemption of both SPL stablecoins were functioning properly and neither party was privy to the exchanges’ rationale for pausing deposits. Binance has already announced that deposits for USDT (SOL) have resumed.
Coinbase Exchange and CES Insights
Exchange
Volumes on exchange remain elevated versus October levels. Price volatility across the larger and more liquid tokens was relatively subdued as the market braced for more possible bad news. BTC and ETH dominated trading with interest in smaller tokens declining.
Coinbase Execution Services
Overall, clients of CES remain net sellers. Interest to short crypto has grown as traders look to protect their portfolios from further contagion. However, crypto focused VC’s continue to use the recent weakness as an opportunity to add to their portfolios. Liquid staking and scaling solutions were the favored sectors on the long side.
Bitcoin Technicals
Based on the technical charts, it appears that BTC could retest the recent low of US$15,520 and possibly even set new lows for 2022 within the next two weeks. At the moment, we are focusing on the weekly and monthly timeframes as they have never been more bearish. Indeed, it looks like any rallies could be rejected given the current structures. On the weekly side, BTC had its worst bearish-engulfing candle since June 18 (representing the previous 2022 lows) during the week of November 7 on the back of the FTX news. This created a rejection of the long-term trend line, a bearish cross rejection of the StochRSI and an EMA70/EMA100 cross which can be considered a “death cross” in this environment. On the monthly time frame, the EMA9 is set to cross the EMA50 within the next week. If that happens, then we think this may be the technical setup that could take BTC to $13,500. At best, we believe BTC could rally to $18,500 (EMA20) before rejecting that to the downside.
