Analytics

Crypto Market Forecast: Week of June 27th 2022

The Bitcoin (BTC) price recovered slightly and is up almost 8% this week. It currently hovers around the US$21K level. Ether (ETH) and Binance-coin (BNB), the second and third largest (non-stablecoin) assets on Brave New Coin’s market cap table, also had a comeback, and are both up by about 15%.

__Digital asset prices took a serious hit__ following the Terra/LUNA debacle on May 8th. Just last week, after the Celsius Network had frozen customer withdrawals, we noted that on-chain analysts had reported observing funds from Celsius in Terra’s Anchor Protocol (_before_ the crash) and over a half a billion dollars worth of funds being withdrawn from the protocol.

To add another infrequently-discussed twist, Custodia Bank founder and CEO Caitlin Long recently explained how despite Bitcoin’s easily-verifiable ~19.1 million present supply (and fewer than that “in people’s hands” once you consider lost private keys), the supply could be significantly higher once we consider “multiple claims, multiple IOUs to the very same bitcoin”. As Long puts it, “fractional reserving crept into Bitcoin through all these derivative and lending platforms”. What this means is that Bitcoin’s “real price” is suppressed because — holding the demand constant — the supply is artificially propped up through the fractional reserve lending platforms.

Long is a 22-year Wall Street veteran and has sounded the alarm when she noticed similar “fractional reserving” in stocks and bonds.

__Celsius’ competitor BlockFi entered the spotlight__ this past week as FTX provided the firm a US$250 million revolving line of credit. Three days after the BlockFi announcement of FTX’s credit offering, the company also announced an increase in yields for several assets in the BlockFi Interest Account portfolio. Thereafter, the Wall Street Journal announced that FTX, in fact, was looking to acquire a stake in the lending company, and Morgan Creek sought to counter the FTX offer.

While BlockFi emphasizes a positive spin on the new credit line, it is also being called a “bail out” by some. The industry continues to watch how BlockFi and other crypto lending platforms do in light of present events. Some will turn out to be solvent and others will not. For each one that falls, expect a downward push in asset prices following the news. But over the long-term, expect a healthy recovery as riskier lending platforms are weeded out. Consumers demand greater transparency, and relatively smarter and more financially stable platforms will step in to meet that demand.

__Federal Reserve Chair Jerome Powell testified__ to the US Senate Banking Committee this week and called for “better regulatory framework” and for financial products inside the sphere of cryptocurrencies to be regulated the same as they are outside it.

Powell’s comments follow a bipartisan bill proposed by Senators Cynthia Lummis (R) of Wyoming and Kirsten Gillibrand (D) of New York that seeks to do just that. Although such a bill being passed into law may be a year or two away — especially given the upcoming midterm elections — if the would-be law is seen by the market as non-hostile, coherent and fair, conditions could be set that allow for assets, the ones that solve real world problems, to do well.

Crypto news for the weeks ahead

__27 June__

The Waves blockchain will undergo a mandatory major upgrade this week. Technical details available on GitHub.

__19-21 July__

The Ethereum community will launch a major event in Paris in July: the upcoming Ethereum Community Conference. It will host “more than 100 speakers… from all over the world, multiple side events, meetups, panels and parties”.

__End-of-month in July__

The smart contract platform Cardano (ADA) has delayed the “Vasil hard fork” of its blockchain. The upgrade will increase the block size limit (allowing for more transactions per block) and hopes to achieve lower transaction fees. The previous deadline was scheduled for June 29th but is now set for the final week of July.

Top 10 Crypto Summary

A bit of upward momentum this week for all assets in BNC’s top 10 list by market cap — with Solana (SOL), Ether (ETH) and XRP (XRP) leading the recovery. This week’s recovery follows sharp across-the-board price drops over the past two weeks for all (non-stablecoin) assets, and preceding that, we have seen the Bitcoin price sitting at about the US$30K level since the Terra/LUNA crash on May 8th.

Bitcoin Price Chart

Glassnode’s special report this week for on-chain Bitcoin analysis looked at the MVRV (market value divided by realized value; that is, the price now, versus what people paid for them) wallet cohorts and noticed that both short-term and long-term wallet cohorts are sitting with unrealized losses. This is the first time that both short and long-term wallet cohorts have held unrealized losses since (for only 3 days) in the first half of 2020.

Glassnode also looked at the “capitulation phase” that both miners and long-term holders presently find themselves in under financial stress. Miners are feeling the pinch, some shutting down their machines, and even selling off bitcoin holdings to pay off their loans in the present bear market. Similarly, long-term holders (the “smart money”) find themselves realizing some losses, selling a portion of their holdings.

   

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