Do not be fooled by the manipulation in the crypto currency markets these days as negative news headlines continue to surface. Keep in mind that many new Bitcoin investors just entered the market and do not fully understand the technology and the volatility in which it trades just yet. Be prepared for a choppy market before the next move higher. Last week, the IPO of Coinbase shook the markets as It went public, and brought even more excitement to an already overhyped market.
Since then, the media has jumped all over Bitcoin and that has played a significant role in its recent downtrend. Since Bitcoin hit its all time high at 65,000, an onslaught of negative news quickly started surfacing which sent the price back down to its consolidation levels between 52,500-55,800. (Negative news headlines below)
- Equities, Coinbase IPO potentially causing the initial selloff
- Political, Government plans large taxation on crypto gains weighing on sentiment
- Political, Biden administration comments about dismantling bitcoin piece by piece
- Exchanges, Liquidations to large scale longs
- Foreign, Blackouts in China
Lets begin with Coinbase
Coinbase IPO On April 14th 2021, Coinbase went public under the ticker symbol COIN! Shares opened at a high of $380 and quickly soared to $422 before closing the day at $328. Today, COIN trades lower at $306.25. Cathy Woods recently released news about her adding Coinbase to the ARK Investment Management portfolio after disclosing the sell of TESLA shares to pay for this transaction. Cathy Woods for months has pitched the stock of TESLA, so for her to sell a portion of that position is very interesting to me. In my opinion, she must see the same upside potential in COIN as she does in TESLA. (quite extensive if you follow ARK).
Coinbase as a company had a breakout year reporting 56 million individual users, 7,000 institutions, and over 115,000 partners in over 100 different countries. Doubling the numbers the company reported a year prior. The numbers are simply amazing but that night we unfortunately saw the first crypto sell off the first night after the company went public and the hype dissipated. Due to the blowout numbers, many investors hit the exits on individual crypto coins to get into this diversified equity play, we saw that play April 14th as selling pressure was on BTC since the close of the US Stock market. Coinbases success is huge for the crypto currency space because they bring more mainstream mom and pops to the market. I would not personally use Coinbase due to ownership rights, security, and their high transaction fees. This platform is great for introducing beginners to the market. Seasoned traders need 4+ accounts and cheaper trades.
The Blackout mining that occurred on April 15th is now being referred to as the "The China Hash Rate Crash Of 2021"
Power outages across Northern China caused Bitcoin mining farms to temporarily go offline. North China is home to some of the largest Bitcoin farming mines in the world. When that type of power goes offline, that essentially limits the number of transactions that can be processed and verified on the visible ledger. This needs to happen simultaneously. Given the currently BTC volume, orders could not get filled. Many orders were held up in the blockchain ledger, and were pending for over 9 hours causing a 20% corresponding decline in hash rate within the first hour of this event. For those of you who remember the crash of 2017, liquidity was the major issue to the initial BTC selloff, and maybe this brought fear to old bulls in the market.
All in all, do not be worried about this as Chinese regulators came out and said, "The blackouts were necessitated because of a “comprehensive power outage safety inspection” in Xinjiang, per the Wu Talk report.
Bitcoin Hash Rate continued - Bitcoin hash rate has dropped as much as 50% this past weekend but during the week it stabilized as miners came back online and filled their backlogged orders, which now is profitable considering the price movement back up this
Billions of Liquidation - On April 17th $7.6 billion dollars in crypto, mostly long positions were liquidated in one hours time! Specifically when bitcoin's price plunged to $52,000. (data from bybt.com). 300 Billion worth in 24 hours! Given its massive upward trend, this retracement does not change its fundamentals. Supply and demand is still in play. Supply goes up 2% a year and demand is still there given the institutional acceptance of late. This Digital gold asset is in the middle of its bull market. Golds market cap is around 10 Trillion, Crypto is way below those levels. Risk reward is still in investors favor in my opinion in th
Past major bull markets have seen a pullback like this one and investors should not look to much into this news.
Treasury Secretary Janet Yellen has been very vocal about her stance on BTC all year. She notes that she is not a fan of it, and lawmakers need to "curtail use". Also, the handpicked SEC chairman by president Joe Biden, Gary Gensler said "there should be no confidence in this market, I repeat, no confidence in this market. Lastly, Federal Reserve governor Lael Brainard added that Bitcoin and other crypto currencies "pose a number of risks to the financial markets."
The FED - Federal Reserve Chairman Jerome Powell responded to a question from the media and said that cryptocurrencies are speculative and highly volatile. He stressed they're "not really useful as a store of value, and they're not backed by anything."
The comments above seem to me as all short term headwind problems and will be figured out as time moves on. Washington currently has the same stance as Jamie Dimon did back in 2016/17. Since that time, even Jamie has come around the crypto market and sees the potential in the currency and blockchain technology. Crypto will help the dollar long term
Taxation - The Biden administration is also making it difficult for long term holders to sell their crypto with the new very high tax initiative against crypto currencies gains. This is enticing holders to hold BTC more long term until this is figured out in a reasonable matter. Right now the current tax rate ranges from 37-40%. Rumors of 80% have been whispered on Reddit & Wall Street, which seems ridiculous and does not seem likely to pass. The Kraken CEO issued a warning on April 19th about the government's potential on cracking down hard on all crypto currencies. (Kraken is one of the best exchanges used in the world, and offers cheap transaction fees and large margin options on its platform)
Rebuttal to Administration Concerns
Much like gold investors, Bitcoiners seem to argue that the dollar is "fiat" and for the most part historically a poor store of value. They also argue the US dollar lacks properties of sound money given the national debt and in ability to print currency into the markets.
In other words, there is a distinction between medium-of-exchange and store-of-value in the currency markets today. Maybe someday technology, and tax law, etc, will exist to support the everyday medium of exchange use-case for Bitcoin, maybe using a smart NFT to trace tax law and the price of BTC.
XRP-X Since being attacked by the SEC for fraudulent activity is now up 457% since being cleared of all false allegations.
Bullish needs to break $56,900 to see strength return to the market
Bearish needs to hold $51,700 key support level - If this breaks look for a more substantiated selloff.
Written by Cameron Cole