A sharp spike in the 10-year U.S. Treasury yield and an extended Big Tech sell-off is weighing on cryptocurrency prices as investors flee risk-on assets.
Bitcoin (BTC) continues to struggle below $50,000 on March 5 as a spike in the 10-year Treasury yield to 1.62%, its highest level in over a year, has taken a toll on global financial markets and hit risk-assets especially hard.
At the time of writing the S&P 500 and Dow are up 0.46% and 0.64% but the tech sector sell off continues as companies like Apple and Tesla continue to slump further.
Economists see rising bond yields as the result of improvements in the economy thanks to the Covid-19 vaccine rollout and the expectation that economic activity will ramp up as the rate of coronavirus infections drop. The rise in yields has led some to speculate that the Federal Reserve may institute yield curve control or take a more hawkish stance, but so far the central bank has refrained from altering its current plans.
Data from Cointelegraph Markets and TradingView shows that Bitcoin bulls attempted to stage a rally during early trading hours on Friday, pushing the price up 5.25% from a low of $46,280 to an intraday high of $48,725. The $50,000 level has yet to be reclaimed as a firm support and traders are still looking for a daily close above $52,000 to confirm that bullish momentum has been restored.
Despite this week’s pullback, optimism among investors remains high following February’s record-breaking month which saw Bitcoin reach a total market cap of $1 trillion and a new all-time high at $58,532. Ether (ETH) price has also been consolidating for the past two weeks after hitting a new high at $2,033 on put in a record high of $2,033 on Feb. 20.
After strong parabolic rallies, a cooling-off period of range-bound trading and lower support retests is customary and from a technical point of view, Bitcoin and Etheruem are in a consolidation phase.
Historical data shows Bitcoin struggles in March
2021 has seen Bitcoin put on its best yearly start since 2013, but historical data shows BTC price tends to struggle from mid-February to the end of March. A recent report from Delphi Digital highlighted this trend, which has also been applicable to Ether since 2018.
According to analysts at Delphi Digital, Bitcoin’s volatility also increases in March, meaning that moving forward 20% price drawdowns should not come as an unexpected surprise.
Despite the most recent corrections below $50,000, Delphi Digital’s overall outlook remains optimistic and the analysts said there is “nothing in the data or charts giving us reason to believe the peak for BTC this cycle is behind us.”
The report said:
“Bitcoin’s breakout above $20,000 at the end of last year served as a strong confirmation for its uptrend and marked a significant milestone; zooming out the long-term chart for BTC/USD looks very promising.”
The analysts also suggested that Bitcoin could possibly overtake gold in the future as the precious metal’s 9.8% decline year-to-date has been its worst in more than 30 years.
This is possibly due to a divergence in fund flows between Bitcoin investment products and the world’s largest gold ETFs that has emerged in recent months and Delphi Digital hinted that the longer gold underperforms, “the more attention BTC is likely to garner.”
New all-time highs amidst the market sell-off
While Bitcoin and most major altcoins are in the red today, there are a few notable standouts for the week.
Theta (THETA), a blockchain-powered video streaming platform, saw its price surge to a new record high of $4.50 on March 4. SwissBorg (CHSB) price also rallied 13.04% to establish a new high at $1.16.
Ether experienced a 6.24% pullback earlier today, dropping to $1,481 and Polkadot (DOT) has been the hardest hit project in the top 10, down 10% and trading at $32.42.
The overall cryptocurrency market cap now stands at $1.44 trillion and Bitcoin’s dominance rate is 60.7%.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
As Bitcoin ETFs launch in Canada, an approval from U.S. authorities appears to be closer than ever before as naysayers start to run out of reasons to deny it.
The United States Securities and Exchange Commission’s floor is littered with failed crypto fund filings, but this year, following Canada’s lead, the U.S. might actually have an exchange-traded fund that tracks digital assets.
After all, the price of Bitcoin (BTC) is booming, the SEC has a new crypto-savvy chairman, and Canada, which is sometimes viewed as a beta test site by U.S. regulators, debuted a Bitcoin ETF in late February that by most accounts has been stunningly popular. But does a crypto ETF really matter anymore?
Clearly, a lot has changed in the past year — what with a global pandemic, a change in administrations in Washington and new price records being set regularly on the crypto front. Whereas many predicted as recently as June 2020 that an SEC-sanctioned Bitcoin ETF would be a very “BIG Deal” and “open the flood gates” to BTC adoption, with a crypto ETF now on the brink, some observers aren’t so sure anymore.
“I used to think it would be a game-changer but now I think it would be just another step in the evolution of crypto,” Lee Reiners, executive director of the Global Financial Markets Center at Duke University School of Law, told Cointelegraph.
Eric Ervin, CEO of Blockforce Capital and Reality Shares and co-founder of Onramp Invest, told Cointelegraph: “I think a crypto ETF is less significant than we thought before because a lot of institutional investors finally got tired of waiting and figured it out.” Ervin’s firm was one of nearly a dozen whose application was sideswiped by the SEC — the Reality Shares ETF Trust application was pulled in February 2019 “on SEC advice.” That said, Ervin acknowledged that there “are still a massive number of investors on the sidelines” who might welcome such an investment option.
Meanwhile, applications to the U.S. agency keep flowing. Most recently, the Chicago Board Options Exchange requested permission to list a Bitcoin ETF proposed by asset manager VanEck.
State Street Corporation — one of the world’s largest custodians, with $38.8 trillion in assets under custody and/or administration — will be servicing the VanEck ETF, if approved. Nadine Chakar, head of State Street Global Markets, told Cointelegraph that the company is working to bring ETFs and exchange-traded notes to market in Europe and the Asia-Pacific region, adding that “Our clients have seen interest grow in Bitcoin and […] there is a feeling the market is maturing.” Indeed, in the three years since early 2018 when Bitcoin interest last peaked:
“They feel that the market has become more efficient, crypto custody solutions have evolved to offer better security that they are comfortable with, and regulatory clarity has increased such as we’ve seen with the OCC’s [Office of the Comptroller of the Currency] recent announcements.”
More success in 2021?
Has the crypto ETF climate really changed in Washington though? Michael Venuto, co‑founder and chief investment officer of Toroso Investments, told Cointelegraph: “I believe the odds of a U.S. Bitcoin ETF being approved are higher than in previous years.” Improved crypto custody, reporting and transaction transparency have calmed many regulators’ concerns, he said, and “The fact that BNY Mellon announced its move towards crypto custody on the same day as a Bitcoin ETF was approved in Canada is not a coincidence.”
“Investors have been looking to the US as the next potential market for ETFs that track digital assets,” wrote FTSE Russell, a subsidiary of London Stock Exchange Group that produces stock market indices, in a recent blog post, adding: “And speculation has only increased in recent weeks with the first Bitcoin ETF launch in Canada joining crypto ETP listings in Germany and Switzerland, as well as the continued popularity of the Grayscale investment trusts tracking this market.”
Regarding Gary Gensler’s nomination as SEC chairman, “This goes a long way towards advancing innovation in the US financial markets,” added Ervin, who agreed that the likelihood that U.S. regulators will approve a Bitcoin ETF this year has improved. He added further:
“As a former Chair of the CFTC, Gensler understands the importance of financial innovation, but he also has a healthy respect for the potential damage that unchecked markets bring.”
Reiners observed that based on what the SEC had been saying recently ETFwise — which isn’t much — a U.S. crypto ETF seems to be no closer than a year ago. However, when taking a broader look at the maturation of the crypto market and the subsequent institutional interest, he believes “It’s getting harder for the SEC to continue to say no.”
Is an ETF better than a trust?
But would an SEC-sanctioned ETF really be of major consequence now? What, for instance, does an ETF offer Bitcoin investors that current “trusts” like Grayscale Bitcoin Trust don’t?
GBTC and other trusts trade over the counter, not on major exchanges like the New York Stock Exchange, noted Reiners. By comparison, “An ETF is widely accessible to all,” including retail investors without access to OTC markets.
State Street’s Chakar noted that GBTC is essentially a closed-end fund open to qualified investors, and although shares of the trust are available on the secondary market to retail investors, those shares “are not tied directly to the price of Bitcoin. As such shares most times trade at a premium — or a discount — to the underlying price of Bitcoin.”
Venuto added further: “The ETF structure provides for intra-day creation and redemption to meet demand. This function removes the premium and discount issues which have impacted the pricing of GBTC” — though he opined that if regulators were to approve a Bitcoin ETF, “Then in short order they would allow GBTC to convert to a similar ETF like structure.”
Along these lines, Canada-based investment manager Ninepoint Partners, which launched a Bitcoin trust two months ago, this week announced plans to convert its trust to an ETF on the Toronto Stock Exchange — following other Canadian investment firms seeking to capitalize on the untapped crypto ETF market in the country.
If a U.S. crypto ETF comes to pass, how would it play out? Would it bring in more institutional investors, for example? “Many institutions can only invest in funds, so the ETF is a wonderful step in the right direction,” Ervin said.
Institutional interest will continue to build regardless of an ETF, opined Venuto: “In terms of institutional adoption, that ship has sailed. […] An ETF will be primarily used by individual investors and financial advisors.”
“An ETF is more attractive to both institutions and retail investors in that it does tend to carry much less liquidity risk and more transparency to the underlying price of the asset — and fees associated with it,” said Chakar.
But what about Bitcoin and cryptocurrency adoption in general? Would a U.S. crypto ETF transform that landscape? Reiners told Cointelegraph:
“There are now lots of ways for retail investors to get exposure to crypto, and the list keeps growing. Plus now we have Tesla and other public companies investing in Bitcoin. The barrier between the crypto sector and the traditional financial system has been eroding for several years now; a Bitcoin ETF would further blur this boundary.”
Regarding Tesla, MicroStrategy and other public companies that have purchased Bitcoin recently, Chakar told Cointelegraph that “Investing in a company that has publicly acknowledged that it’s buying Bitcoin is probably not what most institutional [investors] would do to gain exposure to the asset.”
She added that crypto has been around for 10-plus years now, “But it has never been packaged in a way that allows for integration into a portfolio that is seamless.” By comparison, “ETFs have proven themselves to be a preferred and growing investment alternative thanks to the fact they offer a lower cost, liquidity and tax efficiency that direct investments may not, especially in nascent vehicles like Bitcoin.” Ervin told Cointelegraph that he likes the idea of an ETF for things like gold or silver, but for him, “Wrapping bitcoin up into a fund seems silly to me.” He added:
“There is no doubt that it is a better vehicle than a closed-end product, and competition will bring better fees and price discovery, but I don’t think most investors realize that they can buy Bitcoin directly without worrying about the cumbersome burden and costs of a fund.”
“Bitcoin doesn’t need an ETF”?
All in all, it looks like a U.S. crypto ETF will eventually come. As Reiners noted: “Regardless of their [the SEC’s] view on the merits of an ETF, if they are the lone holdouts, you have to wonder how much longer before they cave to the immense pressure and interest for an ETF.”
Under present circumstances, a U.S. government-approved Bitcoin exchange-traded fund may not be the game changer that some once predicted. A year ago, most didn’t anticipate the current institutional absorption of digital assets.
As Macrae Sykes, portfolio manager and research analyst at Gabelli Funds — an investment management firm — told Cointelegraph, institutional interest in cryptocurrency continues to grow. Coinbase’s initial public offering filing and Bank of New York Mellon’s recent announcement that it will support digital currencies offer further evidence of potential growing demand: “The ETF approval in Canada is just another step in the evolving regulatory process for accessing digital assets.”
“Bitcoin doesn’t need an ETF,” Venuto told Cointelegraph. Still, even if no longer a game changer, there is little for a crypto enthusiast not to like about an SEC-sanctioned crypto ETF: “Access is access and the more access to the asset class, the better,” said Ervin. After all, “Not everyone wants to own bitcoin directly.”
Users and investors delight as EIP-1559 is scheduled for July, but ETH miners are less than thrilled.
A hotly awaited upgrade to the Ethereum network that may result in ETH becoming a deflationary asset is now scheduled for the “London” hard fork in July.
Ethereum lead developer Tim Beiko previously teased that the decision would be made today two weeks ago, and proposed the inclusion on the Core Developers call today. There were no verbal objections.
“We’re in a spot where the EIP is sound,” said Beiko on the call. “[…] We’re in a spot, I think, where it’s ready to be included in an upgrade.”
The proposal, co-authored by Ethereum cofounder Vitalik Buterin, will transition Ethereum’s fee structure away from a bidding system that allows miners to prioritize the highest bids. The new fee structure will dynamically and programmatically adjust fees so users only pay the lowest bid for each block.
The newest Wrapped Ether has an extensive list of improvements, including the anticipated flash mint feature.
A team has released WETH10, the latest iteration of the Wrapped Ether token that allows using Ether (ETH) in a DeFi setting. WETH10 carries a host of useful features, the most notable of which is the flash mint, an evolution of the flash loan concept.
Flash loans allow users to borrow the entire liquidity pool of a protocol to use as they see fit, without posting collateral. The only limitation is that the loan must be returned in full within the same transaction, otherwise the loan will never exist in the first place.
The flash loan’s prevalence in hacks has made the concept somewhat controversial, with some arguing that they are net negative for the ecosystem and should be removed. For others, they represent one of few meaningful DeFi innovations, which democratizes access to arbitrage.
One limitation of flash loans is that the total sum available for a transaction is limited by the liquidity locked in a particular protocol. This is where the concept of a flash mint comes into play — instead of taking funds from a liquidity pool, the mechanism mints tokens out of thin air and destroys them once no longer necessary.
The amount that can be obtained from a WETH10 mint is not really infinite, Alberto Cuesta Cañada, technical lead for Yield Protocol and developer of WETH10, told Cointelegraph:
“The only limitation to flash mints of WETH10 is that the flash minted amount can never exceed 2^112-1 at any given time.”
In decimal terms, the number quoted by Cuesta Cañada has 33 zeros, which should be enough to cover any liquidity needs in DeFi. In practice, if the user needs to unwrap the WETH for a particular use, there may be limitations due to how much ETH is stored on the WETH contract.
Most DeFi protocols actually use WETH in the backend, though they hide this from users by automatically wrapping and unwrapping it at each interaction. If they were to switch to WETH10, the flash mint could grow to its full potential.
Will projects adopt the new standard?
“The new standard will be adopted slowly, it it gets adopted,” said Cuesta Cañada. “It is not users, but applications, that might adopt WETH10, and nothing might be seen for at least a couple of months.”
Adopting WETH10 only for the risk of amplifying potential losses from coding mistakes may be a tough proposition, but the new token carries a host of other advantages. WETH10 includes the ability to make transactions free for the end user, and it skips the “approve token” mechanic to save on gas costs and avoid security threats. An additional benefit of WETH10 is that its flash mint is completely free, unlike flash loan protocols levying their own fees.
Cuesta Cañada believes that newer projects will have an easier time integrating the standard, with existing names possibly doing so in their next releases. It is yet unclear if DeFi projects believe the risks of flash mints outweigh the benefits from the new WETH standard. “No one has committed to use it yet, but we haven’t gone looking for it either,” said Cuesta Cañada. He concluded:
“If the selling proposition of WETH10 is good enough, it will be adopted. If it is not, such is life, we all learnt a lot and had a great time coding it.
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.
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.”
To counteract the risk, investors should take advantage of both cryptocurrency’s unparalleled potential and future rate volatility.