Coinbase’s Apolitical Stance
The leadership in Coinbase has mandated the team to focus mainly on the company’s mission rather than politics. This move comes after an internal meeting to discuss changes in the company’s culture. An audio file was leaked to the media outlet Motherboard. Allegedly, Coinbase management was forcing employees to delete political Slack messages.
Roughly 5% of Coinbase’s staff subsequently left the company with an offered exit package. Despite this, CEO Brian Armstrong said that a “silent majority” supported the apolitical stance.
Undoubtfully, since the beginning of 2020 the world has faced several unique circumstances, with many of them to prior have been seen only in Hollywood movies. More precisely, on 11th of March the World Health Organization (WHO) recognized COVID-19 as a pandemic, exactly 100 years after the Spanish Flu, and soon enough, countries took the decision to lockdown their economies in order to limit the outbreak of the virus. As expected, decisions like this it is impossible to not affect the markets. Stocks plummeted and several corporate giants lost, almost in a week, the 80% of their value.
The month of September saw volatility resume after a dull August with the VIX whipsawing over 50% between 24.00 and 38.00. The seemingly never-ending tech rally grinded to a halt after the Nasdaq failed to make any progress above the 12,500 level. Currently prices are around 10% off the highs with the USD experiencing its largest surge in months. The DXY broke back above the 94.00 handle after an increase in Covid-19 cases and a resurgence in national restrictions and lockdowns spooked investors. The Japanese Yen also benefited from the sour risk mood as EUR/JPY broke below the 123.00 handle for the first time since July. This came after Abe’s Successor Yoshihide Suga took charge as the new prime minister for the nation reiterating his intention to maintain and advance the former PM’s approach titled “Abenomics”.
Ever since Bitcoin climbed to almost $20,000 in 2017, the investment environment has changed. We have seen an overwhelming increase in volatility not only for the cryptocurrency sector but also for traditional equities and commodities. Within this article I will focus on explaining more about the different “bubbles” in the cryptocurrency market while laying the foundations for a potential analysis on how this affected traditional markets.
Crypto Banks to Substitute Traditional Banks
According to an article written by Mark Binns, CEO of BIGG Digital Assets, within three years we could see crypto banks overtaking traditional fiat banks. As cryptocurrency adoption grows bigger, newer generations of customers will start seeking financial systems that incorporate both crypto and fiat assets. A key example of this is Kraken, the first-ever cryptocurrency business in the United States to become a certified bank.
Banks who decide not to incorporate this new asset class might lag behind as people start looking for Bitcoin as a potential hedge for economic inflation. It is important to understand that a more comprehensive, yet simpler user interface should help increase adoption as a lot of people are still hesitant due to their lack of understanding of the technology.
CFTC Charges BitMEX
The United States Commodity Futures Trading Commission (CFTC) charged BitMEX with operating an unregistered trading platform and violating Anti-Money Laundering regulations. The individuals charged include Arthur Hayes, CEO of BitMEX, as well as Ben Delo and Samuel Reed.
Bitcoin’s price action and sentiment might be affected by the news and following updates since BitMEX is the biggest leveraged trading platform in the cryptocurrency industry. Open Interest in BitMEX declined about 16% after the news released as traders closed their positions and withdrew their money from the exchange. Despite criminal charges from the DOJ and at least one arrest of its leadership, Bitmex denies the allegations and promises to continue operating as usual.
Dollar Currency Index (DXY)
Before analyzing Bitcoin’s price action it is important to look at the dollar currency index due to its strong inverse correlation. Last week, I talked about how the DXY was breaking an important resistance and might launch ahead to 95. As can be seen from the chart below, this price action almost took place before reverting. The DXY is now currently testing its former resistance and it is possible that a new support is established in this area. If this were to happen and in addition to the previously mentioned bullish divergence, a case for the DXY going all the way to 95 or even 96 levels is not out of the question. If this were to happen, we could see Bitcoin plummeting sub-10K.
Not Your Keys, Not Your Crypto
Major Cryptocurrency Exchange, KuCoin, reported a major security breach on September 26th. Despite this news, Bitcoin did not see any correlated price movement. This was the same scenario for Ethereum and other ERC20 tokens. It is estimated that the breach affected around $150 million in user funds. In order to battle potential selloffs; major exchanges, including Bitfinex, froze USDT transactions associated with the hack.
It is important to remember than once you deposit your crypto into a broker, it stops being your crypto. Similar to traditional finance, the crypto represented in your account is only an IOU which establishes that the broker owes you that quantity. If you do not own the private keys of those wallets, then you do not really own that crypto.
As it has been discussed on previous webinars, Bitcoin is presently showing more and more bearish confluence in terms of potential new resistance. Last time, I discussed how bouncing from the $10,000 level could lead Bitcoin to potential gains if it could break the smaller resistance at $11,000. This and last week, Bitcoin saw a rejection of the $11,000 area alongside a bearish cross from the 20 and 50 EMA on the daily. I have discussed the 20 EMA and its relevancy in terms of Bitcoin’s price action. The 20 EMA has been a strong support through the rally and could potentially serve as a strong resistance now that Bitcoin has broken it to the downside.
CME Futures Gap at $9,600
As it has been discussed previously, there is a CME Futures Gap at $9,600 which has not yet been filled. Even though Bitcoin’s price action corrected within the past two weeks, the price did not fill this gap entirely. A lot of traders seemed to have front-run the price as it dipped close to $9,800 pushing it back above the $10,000 level. Having this into consideration, it is important to see the following levels ahead. Breaking the $11,000 – $11,200 might lead Bitcoin to further level at $12,000. Contrary to this, if the price action went back down to $10,000; the possibility of it revisiting lower support levels below the CME Futures Gap at $9,600 increase.