Bitcoin dropped below $60,000 on Sunday after new all-time highs, but stablecoin inflows show this is not a big concern.
Bitcoin (BTC) pared some gains, dipping below $60,000 on March 14, a day after setting a new all-time high of $61,950 on Binance. However, on-chain data indicates that the uptrend is likely to continue in the near term.
One key metric that is signaling an optimistic short-term trend for Bitcoin is the rise in stablecoin deposits into exchanges.
Although high funding rates and an overcrowded market are causing the price to pull back, the entrance of sidelined capital into the crypto market may further boost Bitcoin’s momentum.
Why Bitcoin dropped after $60K breach
When Bitcoin enters price discovery and hits a new record-high, the interest in the market naturally spikes.
There is a lot of liquidity in the current red-hot market, making it an ideal period for whales and high-net-worth investors to take profit on their positions.
Filbfilb, a pseudonymous trader and technical analyst, noted that high futures market funding rates and Bitcoin deposits into exchanges were spotted before the drop.
The Bitcoin futures market uses a mechanism called “funding” to incentivize traders based on the balance of the market.
For example, if there are more buyers or long contract holders in the Bitcoin futures market, short-sellers are incentivized to sell or short. When this happens, the funding rate increases, making it expensive for traders to long Bitcoin.
Before the drop, the futures funding rate of BTC was hovering in the 0.05% to 0.1% range, which is five to ten times higher than the default 0.01% funding rate. Filbfilb explained:
“Bitcoin temporary selloff after high funding, big net BTC inflows and weekend pump. Guess people thought it was different this time.”
High Bitcoin inflows into exchanges likely fueled the drop because whales often deposit BTC into exchanges when they intend to sell.
Therefore, the combination of the selling pressure coming from whales and the high futures funding rate was the likely reason behind today’s pullback.
How stablecoin inflows can further fuel the BTC rally
But despite, the halt in the rally, stablecoin inflows into exchanges are rising once again, according to the latest data from CryptoQuant.
In the crypto market, traders often hedge their holdings against stablecoins like Tether (USDT) and USDC, rather than cashing out via withdrawals to bank accounts.
Typically, exchanges have a three to seven-day processing period for cash deposits, and when traders want to re-enter the cryptocurrency market, moving cash from their bank accounts back to exchanges becomes cumbersome.
Hence, when stablecoins begin to flow into exchanges again — as seen by the green spikes in the chart above — it suggests that sidelined capital may be looking to get back into Bitcoin.
“There were many stablecoins inflow transactions to exchanges very frequently. 100-287 stablecoins deposits in each ETH block(15 seconds). I think we’ll see more pumps on $BTC or $ETH in the short-term.”
Throughout the past week, the one missing component during the Bitcoin rally was stablecoin inflows.
When Bitcoin rallies without a noticeable rise in stablecoin inflows, it increases the probability of an unsustainable uptrend and a short-term correction.
If the trend of sidelined capital moving back into the crypto market continues, there is a high probability that this will further fuel Bitcoin’s momentum resulting in a broader rally.
A pyramid scheme where “somebody will be burnt” or an “exciting innovation?” Is this the year of the nonfungible token?
In a whirlwind seven-day period, which began with Twitter founder Jack Dorsey proving that almost anything can be tokenized — even his old tweets — and culminated on Thursday with a Christie’s art auction that brought a mind-boggling $69.3 million bid for a tokenized Beeple work — fetching more at an auction than pieces by George Seurat, Paul Gaugain or Salvador Dalí — some observers were asking: Are nonfungible tokens spiraling out of control?
Even before the storied auction house catapulted artist Mike Winkelmann, aka Beeple, into the rarified company of Jeff Coons and David Hockney — i.e., living artists able to command stratospheric prices for their works — some were questioning the market’s sanity. Marketing guru and author Seth Godin, for instance, wrote in a blog post, “NFTs are a dangerous trap,” and the current mania is “an unregulated, non-transparent hustle with ‘bubble’ written all over it.”
Meanwhile, on March 8, an NFT version of a deliberately-burned Banksy painting sold for almost $400,000 on marketplace OpenSea, prompting Zavier Ellis, director of a London gallery, to tell the United Kingdom’s The Telegraph: “I wonder if this is some form of pyramid selling where ultimately somebody will be burnt.” David Knowles, who runs an art advisory firm, Artelier, commented that purchasing contemporary works of art is risky generally, but buying nonfungible tokens appears to be the “extreme end” of this.
It bears asking after such a week: Is the NFT market bubbling over, and if so, are people going to be hurt?
Heading for a fall?
“NFTs are an exciting innovation,” Fabian Schär, professor in the business and economics department at the University of Basel, told Cointelegraph, “but that does not mean that every doodle suddenly is valuable just because it is represented by an ERC-721 or ERC-1155 token,” adding:
“There are some interesting projects out there, and they are likely here to stay, but the vast majority of NFTs will be completely worthless once the hype is over.”
“I wouldn’t say things are out of control, but NFTs seem to have become today’s hot trend, and so many opportunists are jumping on the bandwagon in the hope of making a quick buck,” Gary Bracey, co-founder and CEO at Terra Virtua, told Cointelegraph. “I do fear the oversaturation of mediocre products and newcomers not bringing anything innovative or different to the party.”
What might be driving this speculation? Misha Libman, co-founder of art marketplace Snark.art, told Cointelegraph: “The soaring prices are tied to governments pumping trillions of dollars into the global economy to counteract the damage caused by the pandemic, and this excess liquidity is showing itself across the board.”
Do bubbles typically cause some damage when they burst, though? Answered Bracey: “I’d like to think people are smarter than that and won’t fall for any of the ‘Emperor’s New Clothes’ shenanigans.” The entire NFT community would be negatively impacted if things were to burst, suggested Libman, adding:
“But I think that it is important to note that the current attention and investment pouring into the sector is also helping build the much-needed infrastructure and tools that will make it easier and cheaper to build projects that utilize the blockchain technology.”
Blake Finucane, co-author of a position paper on NFT-based art titled “Crypto art: A decentralized view,” told Cointelegraph: “A bubble is especially hard to avoid with NFTs because one of the notable upsides of NFTs is the ability to buy, sell and trade them instantly, from wherever you are in the world.” Therefore, according to her: “Flipping is inevitable in a hot market where buying and selling are as easy as a push of a button.” Those who are in it for the short term — “only to flip whatever they are buying” — are at the highest risk, she added.
Are buyers “blind” to NFTs’ limits?
Godin further wrote in his post: “Buyers of NFTs may be blind to the fact that there’s no limit on the supply.” One example he gave was that “in the case of art, there’s a limited number of famous paintings and a limited amount of shelf space at Sotheby’s.”
Is this a valid criticism? While agreeing that the NFT market is currently overheated, Schär disagreed with this assessment, noting that while anyone can create an NFT, “it is not possible to create copies of a specific NFT.” As for the specific examples cited in the post:
“When I own physical baseball cards, I have no way of telling how many copies of this rookie card exist. In addition to that, the cards are quite easy to counterfeit. Both of these problems can be solved with NFTs.”
Regarding the “famous paintings” comparison: “I agree that most NFTs are completely worthless. But the same is true for paintings, and it certainly does not mean that the concept of NFTs is fundamentally flawed.”
As for the “shelf space” analogy: “There is really no reason why there cannot be a virtual equivalent to ‘shelf space.’” Platforms like OpenSea can be used for curation.
“I would completely disagree with that statement, as it fails to comprehend the nature of the digital collectibles,” said Libman, referring to the Godin remark, adding: “In the art world, the practice of editioning has existed for a long time, particularly in photography and printmaking, and while an artist can certainly violate the trust of their collectors by selling more editions, the loss of reputation would devalue any future work.”
A profligate use of energy?
In his post, Godin also warned that “the rest of us are going to pay for NFTs for a very long time. They use an astonishing amount of electricity to create and trade.” Responding to this criticism, Giovanni Colavizza, assistant professor of digital humanities at the University of Amsterdam, told Cointelegraph that “technological innovation is already ahead on this issue,” adding further, “Ethereum will soon transition to a proof-of-stake protocol that is much more environmentally friendly.”
Farooq Anjum, associate professor at Harrisburg University of Science and Technology, told Cointelegraph that he wasn’t sure the profligate-energy-use scolding was valid. “Don’t we spend an astonishing amount of dollars to protect the Mona Lisa or other valuable non-digital assets?”
Bracey admitted that the ecological issue had bothered him significantly when he first started getting involved in blockchain, “but technology and efficiency has improved since then, and my understanding is that processes are on the way that will largely address the gas/power issue, particularly with level two and the forthcoming next-gen Ethereum.”
Meanwhile, some were questioning if NFTs were just so many castles in the air. “Is this a bubble?” asked Mati Greenspan, founder of Quantum Economics, in his daily newsletter. “It could be, but in my humble opinion, we’re just getting started.” He displayed the NFT for a pixelated ape that “just sold for 800 ETH (approximately $1.5 million), and here I’m using it as part of a newsletter without paying a dime, nor even breaking any rules.”
But this is not about copying art, Greenspan continued: “What these artists are doing is more akin to selling autographed prints of their work, only the autograph is digitally verifiable and limited in supply, ensuring the scarcity element that collectors desire.”
Colavizza told Cointelegraph that it is difficult to identify a bubble when one is actually inside a bubble, adding: “In the short term, the growth of NFTs and cryptos will need some adjustment after a rapid surge. Volatility will likely remain high.” In the longer term, though, the market should grow significantly:
“The innovations of crypto and NFTs are yet to fully materialize. We are still in the early days, like with the World Wide Web in the late 1990s. Was there a bubble then? Yes. Does it mean these innovations won’t in the long term be extremely successful and impactful? I think not.”
Is there a proper use for an NFT?
Is there a proper use for NFTs, then — beyond mere speculation? “Absolutely,” answered Schär. “For artists, it is a way to reach a broader audience and monetize their work,” while for collectors it offers “provable scarcity.”
Anjum added: “NFTs can possibly be used for addressing the problem of assigning ownership of digital media without a trusted third party,” though that problem is still unsolved, presumably because the market is insufficiently decentralized. “We are trying to run here even though we have not learned how to walk,” said Anjum.
Colavizza acknowledged that some “peculiar usages of NFTs” have been displayed recently — he mentioned the tokenized tweets — but added that “we are already seeing plenty of serious creatives and creators being able for the first time to directly reach their market and monetize their work.”
“There are a multitude of ‘proper uses’ for NFTs,” added Bracey, going on to say: “Being able to authenticate ownership, safeguard a limited-edition release of a special collectible, or anything that requires formal validation or certification will benefit from NFTs. We are only just scratching the surface.”
“Is it a bubble?” asked Libman. “Maybe.” But it could also be about something that can fundamentally change how digital content is created, sold and accessed, he said, adding: “This is not a trivial technological shift that will just blow over and revert back.”
The main thing regarding crypto wallets today is the safety and responsibility of users.
After another jump in the price of major cryptocurrencies at the end of 2020, crypto enthusiasts began to mine, sell and buy currencies with renewed vigor — which means that nowadays, the topic of custodying cryptocurrencies is more relevant than ever. But unlike the past bullish waves, this time many users are also concerned with how to protect their assets.
The blockchain industry is developing, and traders have become noticeably smarter, but scammers and thieves have also become much more agile. This is also indicated by the period appearance of news related to exploits and rug pulls, not only regarding ordinary users but also large exchanges, decentralized finance projects and even nonfungible tokens.
Fraudsters use a variety of tools, from hacking accounts to creating malware. Even well-known projects do not avoid this fate. For example, Trezor recently detected fake apps on Google Play, which affected some users. And at the end of December 2020, more than 270,000 clients of the popular Ledger wallet faced threats after their personal data was exposed by a hacker.
All of this suggests that crypto enthusiasts should be exceedingly careful when choosing how to store their assets.
Buying crypto goes mainstream
In 2021, Bitcoin (BTC) has firmly established itself as a commonly accepted investment instrument and store of value, and it is now being likened to gold. This became especially noticeable when institutional investors started to explore and invest hundreds of millions of dollars — sometimes billions — into BTC.
From Jack Dorsey’s Square recently spending a further $170 million on BTC to M31 Capital filing documents with the United States Securities and Exchange Commission to launch a new Bitcoin hedge fund, crypto is going mainstream. Furthermore, Grayscale Investment’s Bitcoin trust now manages over $37 billion in BTC, which suggests institutional investors feel confident in the instrument. All of these examples work to cement crypto as a viable investment option for retail investors as well.
Also, in addition to simply buying cryptocurrencies, new ways to earn money have appeared on the market, such as decentralized finance protocols that offer various blockchain-based financial services. In fact, this is a very good way to get a fixed income in cryptocurrency with rather high annual interest rates.
The rise of decentralized exchanges has simplified even further the process of owning and exchanging cryptocurrencies. This method of trading cryptocurrencies has been rapidly gaining popularity lately.
Such exchanges, like Uniswap, allow users to carry out transactions directly between wallets. This method implies that users have to know how to store crypto properly and transact through a third party.
Alternatively, users also have centralized exchanges at their disposal; however, there are certain risks regarding the storage of funds. For centralized exchanges, this means that crypto in the platform’s accounts automatically falls under the custody of the exchange, which means that users don’t have full control over their assets. Thus, it is advised by most crypto commentators to store crypto in external wallets.
Examples of crypto wallets in 2021
Each user should remember some elementary security rules unrelated to cryptocurrencies themselves or the equipment that is used. The most important one is that users need to remember their password. It would seem obvious, but users regularly lose huge amounts of money simply because they forget passwords.
Blockchains do not have a password reset function, and there’s no support service to call on. Also, forgetting a wallet’s 12-word seed phrase or writing it down on a medium that gets lost easily is a mistake. The most effective recipe for protecting crypto assets is to be responsible for storing passwords and create a passphrase for the key.
In the case of online wallets, it is a little easier, and the effects of losing a password can be avoided because the keys are held by a trusted third party. The owner of the wallet does not control the keys, they simply login with a username and password. Thus, if their password is lost, they can contact support services, confirm their identity and reset the password. However, from the perspective of decentralization, this is not the perfect option, as the user delegates the control of their keys to a third party.
It is up to the user to decide what’s more important to them and if they indeed trust the company that hosts the gateway to their crypto holdings. Furthermore, any user should be responsible for their capital themselves because no crypto wallet or blockchain is responsible for forgetfulness or inattention.
There are several prominent types of wallets out there:
Hardware wallets represent a more sophisticated way to have a wallet, storing currencies on external offline devices. Some of the most popular solutions are Trezor, Ledger Nano X and KeepKey. These wallets usually come in a form of small flash drives and can support thousands of cryptocurrencies.
For example, Trezor offers two types of wallets, Trezor One and Trezor Model T, which can be purchased for $60 and $193, respectively. The Trezor One wallet has two control buttons, and the newly developed Trezor Model T has a touch screen.
The device is connected to the user’s PC using a cable. Security is ensured through the device, which stores the secret key and signs off on transactions offline within the device itself. If viruses are present on the user’s PC, it does not mean that they have access to the wallet. Naturally, in order to avoid losing money and being scammed, users should buy such wallets only through the official websites and make sure that the device is packaged as stated by the producer.
The process of connecting a wallet is quite simple: Users need to go to the official website, download an app and set up a new wallet. The main requirement is to write down and save a mnemonic phrase of 24 words then create and confirm a password.
Local wallets are the most popular type because they can be downloaded or installed onto devices. Users can enter such wallets only from the device on which they are installed. When using a local wallet, the owner has full control over their assets, as private keys are stored locally on the device without third parties having access to this information.
Today, some of the most popular local wallets are Jaxx, Exodus and Edge, which are examples of free multicurrency wallets that support a huge list of cryptocurrencies. In addition to a desktop version, these wallets tend to also have a mobile version. Most of such platforms have been integrated with the likes of ShapeShift and Changelly, where currency conversion is carried out directly within the app without switching over to a cryptocurrency exchange.
Private keys are stored exclusively on the owner’s device, and protection is provided by using a PIN code, with the option to copy private keys for storage offline.
Web wallets work with cloud storage, and users can access them from any device. Such wallets are just apps on mobile phones or can be accessed via websites, which is very convenient. For example, Matbea, Coinbase and BitGo are all web wallets and exchanges in one service. Matbea supports only seven major cryptocurrencies, which is not a broad range by today’s standards, but in terms of security, this wallet has a head start.
Most of these services make use of two-factor authentication: a code sent via SMS or email and a separate password. Even if a virus has settled on users’ PC, in no way will it be able to read the code from their mobile device to gain access to the wallet. And if a virus settles on a smartphone, it will not be able to read the password or email code. Files are regularly backed up, so even in the event of an accident or hard drive failure, users’ currency will be immediately restored.
Finally, paper wallets are quite reliable, but due to the fact that their public and private keys are printed on paper, they are not used very often. But such wallets seem to be the most interesting way of using crypto. In fact, a paper crypto wallet is just a sheet of paper with a printed QR code that contains an encrypted address for storing cryptocurrency funds. QR codes first need to be scanned to carry out cryptocurrency transactions.
This method of storing cryptocurrencies is fairly safe, as the cryptocurrency is completely protected from the attacks of fraudsters. Along with hardware wallets, paper wallets are often referred to as “cold storage,” as they are completely isolated from the internet and cannot be hacked from the outside.
To create a paper cryptocurrency wallet, users need special software such as Bitaddress.org, which has an open-source code. The service creates a cold storage wallet using randomly generated numbers right in one’s browser. Secret keys remain with users and are not saved on Bitaddress.org’s servers.
WalletGenerator also works like Bitaddress.org, with users needing to move the mouse to increase the randomness of the key generation. The developers also recommend turning off the internet and running the generator from a local HTML file after downloading the archive from GitHub.
There are wallets that combine several methods that were mentioned above. For example, Casa, developed in mid-2020, combines the functions of a local and mobile wallet, with developers outlining security as the main end goal.
When creating a wallet, the user does not need to enter and save a seed phrase or personal data, only email and name. In addition, the wallet does not track one’s location or data transmitted and is devoid of third-party analytics tools. The user is prompted to create a key that will be stored on the device, and the backups will be split between Casa’s own storage and Google or Apple cloud storage. Only the user has access to the key, which requires two-factor authentication.
Another wallet that provides a combined experience is Savl, a mobile wallet for Android and iOS that brings together a peer-to-peer platform, crypto wallet, messenger and cryptocurrency payment service. The wallet has been operating since 2020, and as in the case of Casa, the developers claim that special attention was paid to security and privacy.
When registering a user, the application generates a unique string of 12 words that is stored on the user’s device. No one except the user has access to it, not even the developers. Access to the app is protected by a six-digit PIN code that is set by the user.
Can a wallet be completely secure?
All crypto wallets are safe in their own way, if one chooses them carefully and understands why they are needed. Which wallet to choose depends on the specific person, but the main thing here is security and the ability to store private keys or seed phrases.
If a user needs to store a large amount of crypto, then it’s better to buy a hardware wallet. For those constantly trading on exchanges, users can store funds in wallets created on these exchanges so as to quickly make transactions and not have to pay a transfer fee. However, if the exchange is hacked and there is no insurance fund in place, crypto may be lost. For everyday use, web wallets are rather suitable. The popularity of this type of wallet is due to the ability to quickly and easily sell various cryptocurrencies and make transfers directly to an exchange.
Overall, cryptocurrencies were created on the premise of decentralization, which means each user controls their own funds instead of a centralized entity. Hence, no matter what method for storing crypto the user chooses, they must bear the responsibility for their funds.
Cointelegraph does not endorse any of the products mentioned in the article. Each user should do their own research in order to pick the product that works best for them.