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No more ‘Bitcoin effect’? MicroStrategy stock falls by 50% in 17 days

The excitement around Bitcoin has spilled over beyond spot price, data shows, with MSTR going from above $1,300 to $629 in just 17 days.

The Bitcoin (BTC) price correction isn’t just hurting individual hodlers — the biggest players are suffering in more ways than one.

Data from markets on March 5 revealed that MicroStrategy, which owns over 91,000 BTC, has seen its stock price dive by more than half in just three weeks.

MicroStrategy keeps buying BTC

On the day that the company confirmed that it had added another 210 BTC to its reserves at a cost of $10 million, MicroStrategy’s stock hit local lows of $628. At its peak in February, MSTR traded at just over $1,300.

The volatility is a commentary on the ups and downs of Bitcoin in its latest bull run, which has been characterized by wild swings in both directions.

$MSTR (red) vs. BTC/USD (blue) chart. Source: Tradingview

Since beginning to add Bitcoin to its balance sheet in August last year, however, the overall impact on MSTR remains transformative. Prior to the move, it barely traded above $100.

“They now hold 91,064 bitcoin on their balance sheet,” Morgan Creek Digital co-founder Anthony Pompliano commented on the latest buy.

“This may be one of the greatest displays of conviction in public market history.”

Hayes: Bond resurgence could make investors “exit Bitcoin”

That “conviction” may serve the company well far beyond the short term as Bitcoin’s bull cycle is being challenged by macroeconomic headwinds

For Arthur Hayes, former CEO of derivatives giant BitMEX, central bank policy could, in extreme circumstances, cause capital to drain from cryptocurrency altogether. 

The reason, he explained in a new blog post this week, is that the Federal Reserve could choose to hike rates, causing pain for investors across the board, but also see periods of record low rates, creating a swell of volatility.

“I do not have a model for an estimate of the ratio between the two, but at a high level if global fiat liquidity can earn a real return again in government bonds, it will exit Bitcoin / crypto,” he wrote.

“The whole point of this exercise is to preserve / grow purchasing power against energy. If that can be done in the most liquid asset, government bonds, then liquidity will take the easy option.”

Should such an event occur in the future, Bitcoin would be more dependent on its technological premise, something which Hayes believes will be decidedly underwhelming without the big money on board.

“The amount of remaining technological value is beyond my skills to estimate,” he warned.

“However, it is much lower than the current fiat price of Bitcoin today.”

Arthur Hayes’ anti-inflation options chart. Source: David Venturi/ Twitter

To counteract the risk, investors should take advantage of both cryptocurrency’s unparalleled potential and future rate volatility.

GameStop tale exposes regulatory paternalism and DeFi’s true value

GameStop brings forward the prospect of a paradigm shift that challenges existing regulations: decentralization.

Though seemingly coming from nowhere for many, the themes behind the Reddit-fueled r/Wallstreetbets pump of GameStop feel familiar. Watching it unfold, I tried to figure out just why it had captured my interest to such a degree, and, to me, it was a spillover into the traditional markets of some pervasive themes driving crypto.

Despite some competition in the narrative, I view the motivating force — and by it, I mean the social media-fueled spread of the message that drew enough widespread interest to have an impact in the market — behind the GME pump as analogous with what, at one point, was an impetus behind Bitcoin (BTC). It is a driver for (depending on your level of cynicism) the crypto markets more broadly and the decentralized finance movement — a desire for the “democratization of finance.” Behind that movement is the view that finance and financial products should be open-sourced, accessible to all, as opposed to hinging on whether you are an accredited (read: high-net-worth) or an institutional player.

Related: Time to shine? Crypto should be given a chance after GameStop drama

Accredited investor rules, long the subject of critique, were recently expanded in 2020. Far short of a revolution, the amendment allowed additional classes of investors with certain financial credentials, like a Series 7 and knowledgeable employees of PE funds, to meet the definition among other changes that did not amount to anything meaningful. See the Securities and Exchange Commission’s press release describing the recent amendments to the definition.

There was a folkloric element to the narrative, a David and Goliath tale of sorts, where the everyday man was able to pull off a coup in inspiring a sizable crowdfunded movement in the market. Yet, while it evoked some degree of euphoria, the episode also brings to the forefront some of the simmering underlying tensions in U.S. society, including a strong sense of paternalism toward the poor, in this case, the retail investor, and mounting generational tensions.

Related: GameStop saga reveals legacy finance is rigged, and DeFi is the answer

The regulatory paternalism

In the United States, as a somewhat toxic offshoot of self-determination, there is the underlying bias or presupposition that those who are wealthy became so because of their personal attributes and, likewise, those who are poor will remain poor as a result of some personal failing on their part. Outside the academic setting, policy toward retail hasn’t reflected much exploration into the social and economic factors that allow people to accumulate wealth and the feeling that “the game is rigged” through increasing barriers to achieving upward mobility in the United States.

This manifests itself in regulatory paternalism, the government imposing limitations on who it deems able to afford to make investments or has access to certain financial products. Most visibly, this has left those who are non-accredited without access to early-stage investments. Many have argued that the wealth test systematically disenfranchises any and all investors capable of understanding risk despite their income level, making an argument that I agree with, that “being wealthy is no proxy for financial sophistication.”

But at the same time, this allows access to casinos and lottery tickets, payday loans and other predatory financial instruments, such as reverse mortgages, presumably where a competing interest, such as state budgetary shortfalls or effective lobbying on the part of industry, won out.

What you end up with is a system that seems engineered to reinforce class-based barriers — where the wealthy get to shape law and dictate the narrative as well. This is most starkly evidenced by the Melvin Capital sympathetic content that ran on CNBC portraying the hedge funds as the protagonists, leveraging the dogmatic network-wide belief system that, somehow, Melvin’s actions were good for society and universally just.

This was juxtaposed against a characterization of the Redditors as huddled, unwashed masses who, through chaos and destruction, embarked like lemmings on a path toward personal financial ruin and created a situation where there was some sort of systemic risk created by touting a random low volume stock. Not to put too fine a point on it, but while rich people lost some money here, among others, it is not exactly the financial apocalypse it was portrayed to be.

To me, putting aside the unending joy of having mainstream finance publications quote Reddit netizens like u/DadBod39 and prompting untold memes around Robinhood changing its name to Prince John’s Trading or RobingtheHood, this episode in the stock market captured my attention by highlighting the above-described tension, as well as a generational shift to social-media-based messaging, where the internet can be leveraged widely to produce decentralized market forces.

A paradigm shift

Fueled by (semi)-anonymous decentralized actors, this episode brings forward one of my core fascinations with crypto: the prospect of a paradigm shift that challenges existing regulations. Much like the regulatory challenges applicable to decentralized finance, how do you address a movement of the masses when law presupposes there is a central figure with more culpability than Keith Gill, to which you can attach liability? Addressing this poses a conundrum, as regulators are increasingly faced with cutting heads off hydras with the prospect of more growing back.

Most recently, the House Committee on Financial Services had a post-mortem hearing on GameStop and the surrounding market volatility, and while I always go into these with the lowest of expectations, I come out each time with a sense of renewed nihilism and hopelessness. While the recent House hearing on Feb. 18, 2021, provided an opportunity for a rehashing of the r/Wallstreetbets pump from those with a first-row view of the events that transpired and gave legislators the opportunity to saber rattle and virtue signal to their respective constituents, there were no clear signs of a path forward.

Related: Twitter, GameStop… enough! The world needs true decentralization

There was a cursory discussion of the merits of reducing settlement time (and yes, blockchain), the downsides of relying on high-growth fintech startups to provide market infrastructure type services, and the balancing act, as Sean Casten put it, of trying to democratize finance while not “being a conduit to feed fish to sharks.”

It was also an opportunity for legislators to play “who can be the most tone-deaf to the underlying market incentives” that fuel today’s ad tech and surveillance-driven economy, questioning whether this was indeed a free service for consumers — in this case, retail investors (breaking news, it isn’t) while remaining a for-profit institution. One House member asked if Robinhood would stop the practice of earning revenue by allowing Citadel to “pay for order flow” and allowing for the institutional players to front-run retail, pointing out that the practices that Robinhood engages in are legal, with disclosure, and certainly not unique, and are used by Fidelity, E-Trade, Charles Schwab and TD Ameritrade, among others, according to SEC Rule 606 disclosures. The answer was clearly and universally no, or, as Casten, cited earlier, put it: “There is a tension in [Robinhood’s] business model.”

This is the same legislature that has stalled in an attempt to stem consumer data from being bought and sold as a business model, thereby achieving peak-level hypocrisy in the triple threat of: (1) allowing the monetization of violations of privacy and somehow both; (2) blaming free-market actors for making money off acts that are legal; and (3) also suggesting at times that regulation was the cause of the harm that was done.

In a particularly depressing segment of the hearing, Robinhood was all at once villainized for not providing the committee with disclosure forms that are publicly available; for not foreseeing a tenfold spike in the capital it would need; and for taking emergency steps to meet capital requirements, which involved some degree of discretion in how to address but not as much as House members insinuated.

Others suggested that Robinhood should be responsible for the relative gains in its users’ portfolios, and still, others decried that there were capital requirements for Robinhood in the first place, suggesting that regulations were the root cause of the capital crunch. Altogether, the hearing left no discernable path forward except that we should expect more hearings.

In all, the fallout continues, with a couple of indications that there is certainly more to come. Maxine Waters has stated that regulators will be present to testify at additional hearings of the House Financial Services Committee, and class actions have been filed naming Keith Gill.

I view this as likely a beginning rather than a one-off, where we can look forward to additional skirmishes breaking out with increasing frequency as well as corresponding pressure on regulators to address them. Though I am not hopeful there will be any more movement in the accredited investor definition, maybe it is an opportunity for market regulators to reexamine underlying regulatory bias, as this has shone a spotlight on the need to create new opportunities for younger generations to build wealth.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sarah H. Brennan is counsel and leader of the digital assets and disruptive technologies practice at Harter Secrest & Emery LLP. Sarah has a broad range of experience in corporate and transactional matters. She focuses primarily on corporate and securities law, representing public and private companies, venture capital and private equity firms, investors, and clients in every stage of the corporate life cycle.

Stocks slide as dollar hits 4-month highs: Why Bitcoin price is slumping below $50K

Bitcoin is slumping as the DXY breaks out and the U.S. stock market tanks.

The price of Bitcoin (BTC) is extending its slump below $49,000 on March 5 as the U.S. dollar index (DXY) reached the highest levels since November 2020.  

DXY (blue) vs. BTC/USD (orange). Source: Tradingview

Meanwhile, the prospect of rising rates and a potential stock market top is putting downward pressure on equities and Bitcoin, causing the entire cryptocurrency market to pull back.

Rising treasury yields — the biggest threat to Bitcoin?

Bitcoin and risk-on assets, in general, have been heavily affected by rising 10-year treasury yield rates in the U.S. As a result, the global macro landscape has worsened.

Kyle Davies, the CEO at Three Arrows Capital, said:

“I don’t care about your rate view but if rates stay unch, we’re all gonna be retired if rates go higher, we’re all gonna be back in school.”

The U.S. stock market, particularly the S&P500 index, has already erased all of its gains from 2021, according to Bloomberg.

If the risk-on market continues to correct or consolidate, it would likely have a negative effect on the price of Bitcoin in the near term.

Scott Melker, a cryptocurrency trader, said Bitcoin likely falls into a range. There is significant selling pressure and lots of buyer demand, placing it in a tight range. He said:

“Likely we fall into a range here. Lots of selling at the top (up wicks), lots of buying at the bottom (down wicks). Nice to see a clear shift from supply to demand here.”

Bitcoin price trend. Source: Scott Melker, TradingView.com

In the foreseeable future, if the bond yield curve does not ease, the threat against the short-term trend of the Bitcoin price would likely remain.

Continued steepening … as of yesterday, 2s10s yield curve reached highest since 2015 pic.twitter.com/XSgXIcb52m

— Liz Ann Sonders (@LizAnnSonders) March 5, 2021

Is BTC price bearish?

High Stakes Capital, one of the top traders on FTX, said that he remains full spot long, however. Although Bitcoin’s outlook remains seemingly bearish, he said that the accumulation on Coinbase Pro is ongoing.

In the past week, outflows from Coinbase Pro have continued to increase. This trend indicates that the institutional accumulation of Bitcoin is continuing in the U.S. The trader said:

“I’ve seen on a forum that people think Im bearish w my previous tweets while I was just thinking about plausible ahead scenarios There is a macro risk and if stocks correct, BTC could follow, that said coinbase pro still accumulate at this level Im full spot and lev long.”

Despite the stagnant market structure, various fundamental metrics and on-chain indicators suggest that BTC/USD is on a bullish trajectory as Bitcoin is up roughly 100% year-to-date unlike stocks, which have erased their 2021 gains.

BTC/USD (blue) vs. S&P500 (orange) YTD performance. Source: Tradingview

If institutions accumulate Bitcoin, especially in the U.S., it decreases the probability of BTC plunging below key support levels, such as $30,000 and $40,000.

Unlike previous bull cycles, massive 30% to 40% drops may occur less during this ongoing bull cycle. In the near term, the $52,000 resistance level remains key to more upside. If BTC breaks past it, it would signal a resumption in the bullish market structure, making another broad rally likely.

Square’s $297M stake in Tidal could unlock DLT features, analyst says

Square’s majority stake in Jay-Z’s streaming service Tidal will potentially help artists grow their fan bases using blockchain technology, a Gartner analyst said.

Square’s majority stake in Jay-Z’s streaming service Tidal could potentially result in some blockchain-related functionalities on the platform, according to one analyst.

Avivah Litan, a technology analyst at consulting company Gartner, suggested that Square’s $297 million investment could push Tidal to start taking advantage of new technologies like blockchain and cryptocurrencies, Reuters reports Friday.

With Square’s help, Tidal would specifically benefit from the technology of non-fungible tokens, or NFTs, which allows artists to certify ownership for photos, videos and other digital content, the expert noted. NFT technology could easily track the provenance of autographs and memorabilia, potentially making them even more valuable for fans, Litan said.

Square officially announced that the company entered into an agreement to acquire a majority ownership stake in Tidal on Thursday, claiming that Tidal will continue operating independently within Square, alongside its Seller and Cash App ecosystems. CEO Jack Dorsey subsequently hinted that Square will focus on the critical needs of artists and growing their fan bases in a similar way that the firm has been doing for Cash App clients, stating:

“Square created ecosystems of tools for sellers & individuals, and we’ll do the same for artists. We’ll work on entirely new listening experiences to bring fans closer together, simple integrations for merch sales, modern collaboration tools, and new complementary revenue streams.”

Square did not immediately respond to Cointelegraph’s request for comment.

Available in 56 countries, Tidal is an entertainment platform owned by some of the world’s most famous celebrities like Kanye West, Beyoncé, Madonna, Rihanna and Nicki Minaj. The platform has sought to distinguish itself from other popular streaming platforms like Spotify by committing to providing sound quality to listeners and a greater share of revenue to artists. Jay-Z bought Tidal for about $56 million in 2015 from Norwegian entrepreneurs.

Bitcoin’s next top could be between $75K and $306K, Kraken research suggests

A reading of the historical data paints a promising picture for Bitcoin’s potential growth in 2021.

Analysis of Bitcoin (BTC) price action dating back to 2011 suggests the coin price could next top out somewhere between $75,000 and $306,000, research from Kraken shows.

Based on one reading of a logarithmic growth curve that connects historical tops and bottoms, a coin price of $75,000 would signal Bitcoin’s entry into overbought territory, marking the end of its current bull run.

“Based on previous cycles, Bitcoin could likely continue appreciating gradually in price before ultimately going parabolic and hitting resistance, which will signal the end of its fourth bull market cycle,” the report states.

Analysis of historical price retracements throws up some even bolder predictions. All things being equal, if BTC were to continue along its current growth curve and then enter a retracement similar to prior market crashes, the next bottom would be somewhere around $30,000.

Based on this proposed bottom one can attempt to make predictions about the next market peak, depending on the extent of the retracement.

Were Bitcoin to retrace 70% during the current cycle, the coin price would have to reach a peak of $102,000 in order to hit the aforementioned bottom of $30,000.

Similarly, a 90% crash would place the next top at $306,000, while an 86% drop — the average retracement of previous market cycles — would imply an upcoming market peak of $221,000. Either way, states the report, history would suggest Bitcoin remains “far and away” from a market top.

Diving into the historical data once more, the first quarter of 2021 proved to be the third-best performing quarter in Bitcoin’s 12-year existence, based on return percentage and annualized volatility.

Kraken’s research shows that March has historically been a bad month for Bitcoin, with the coin price appreciating just twice during this period since it began trading. In the past, March has, on average, underperformed February’s growth by 11%.

The report also notes that Bitcoin is now trending in a manner similar to the first quarter of 2013 — the most fruitful Q1 in the coin’s history. A correlation of 0.82 between the two is an encouraging sign and could subvert the historic trend which sees Bitcoin underperform in March.

Bitcoin recorded five consecutive months of positive returns leading up to the time of publication. That’s a sight witnessed just once before — in 2017 during the lead up to that year’s bull run and subsequent market peak.

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