1. Market Wrap: Capitulation City as Bitcoin Dumps to $31K, ETH to $2K Before Reversal
Liquidations, China and even Elon Musk may be factors in markets falling.
An unusual confluence of bearish fundamentals caused all cryptocurrencies to fall Wednesday, but traders seem to be scooping up cheaper crypto, sparking something of a rebound.
Bitcoin (BTC) trading around $39,461 as of 21:00 UTC (4 p.m. ET). Down 8.7% over the previous 24 hours.
Bitcoin’s 24-hour range: $31,926-$43,602
Ether (ETH) trading around $2,609 as of 21:00 UTC (4 p.m. ET). Losing 23.1% over the previous 24 hours.
Ether’s 24-hour range: $2,089-$3,447
Bitcoin, the world’s largest cryptocurrency by market capitalization, was in the red Wednesday by 8.7% as of press time. BTC was above the 10-hour moving average and below the 50-day, a sideways signal for market technicians.
The total drop for bitcoin in the past 24 hours was 26.7%, going from a high of $43,602 around 21:15 UTC (5:15 p.m. ET) to as low as $31,926 around 13:15 UTC (9:15 a.m. ET). Bitcoin has recovered somewhat from that low, at $39,461 as of press time.
2. DeFi Liquidations Up 14-Fold in Broad Crypto Sell-Off
With $662 million in loans unwound over 24 hours, it’s the worst day for such liquidations since Feb. 22.
Borrowers on decentralized lending platforms are unwinding positions fast, most likely to avoid expensive liquidations as the global cryptocurrency market tumbles Wednesday.
According to decentralized finance (DeFi) wallet provider Debank, liquidations of collateral are up 14-fold during the most recent bad days on the lending market.
Over the last 24 hours, DeFi platforms have shaken off $662 million in loans, led by the Binance Smart Chain lending application Venus, Aave (versions 1 and 2) and Compound, Debank data shows.
A normal day has liquidations across DeFi products of $1 million to $5 million, according to Debank. On May 12, there were $39 million worth of liquidations.
When major cryptocurrencies lose a large amount of value on the spot market, it can cause many corresponding positions, such as bullish bets in the form of derivatives and loans, to unwind rapidly. That can prolong a sell-off and drive the pain deeper, if temporarily.
EVERYTHING MUST GO? Borrowers often rush to close positions when the market falls.(Tim Mossholder / Unsplash)
Highly financialized markets can accelerate downturns, noted Taylor Monahan, founder of wallet provider MyCrypto.
3. Time to Decide: Are You an Investor or a Gambler?
A crash isn’t a great time to decide why you invested in the first place. But it’s better late than never.
Is crypto over? Is this the end of the world? And most importantly — will I ever eat steak again?
With bitcoin down about 13% in the last 24 hours, and closer to 34% for the week, these are questions that a lot of people are asking themselves for the very first time. 2020 and 2021 saw a huge wave of new entrants into cryptocurrency, thanks first to sheer boredom, followed by the kind of get-rich-quick rubbernecking that turns everyone into a crypto expert every three years or so. To pick just one metric out of a hat, active Bitcoin wallet addresses have grown by roughly 35% since the start of the pandemic in March of last year.
It’s inevitable that a lot of these new entrants still have a limited understanding of the extremely nuanced technology behind true cryptocurrencies, or of the speculative and often head-spinning theories about how and why they will transform society. It’s not surprising or even particularly blameworthy. Whether we’re talking about crypto or stocks, most people just want to go to the beach, eat some ice cream, and occasionally FOMO into a hot asset they heard about on the internet.
That is, of course, a great way to stay poor. But new entrants to the 2020 crypto bull market have been indoctrinated in an even better approach to losing all your money: speculative day trading. I might not go so far as to call him Patient Zero, but Barstool Sports CEO Dave Portnoy is certainly the most prominent and emblematic vector here. He started livestreaming his stock day trading early in the pandemic and then aped into crypto during the summer of 2020.
And I mean aped. Portnoy, to be fair, has been fairly self-aware about his dunderheaded crypto shenanigans, most recently declaring, “I have no idea how this works,” while putting $40,000 into alleged Ponzi scheme Safemoon on Tuesday. Now, 24 hours later, he’s down about $15k on that bet. Portnoy also sold all his bitcoin last August, at around $11,500, after holding it for a whole week. He then bought back bitcoin two weeks ago at $48,000.
4. When Will Bitcoin’s Taproot Upgrade ‘Lock In’?
With 94% of Bitcoin’s hashrate now signaling for the upgrade, it should lock in during the next difficulty period.
Taproot now has more than the required minimum of miners signaling support to lock in the upgrade, but the upgrade isn’t a shoe-in just yet.
Per the activation rules set by Speedy Trial, 90% of blocks mined within one of Bitcoin’s difficulty periods need to signal support for the upgrade for it to be locked in for activation in November.
Currently, mining pools that represent 94% of Bitcoin’s hashrate have now included the Taproot “signal bit” to show their support for the upgrade. But it won’t be until the next difficulty period that we could see the upgrade locked in because the current difficulty period has already seen too many non-signaling blocks for miners to hit the threshold.
A visualization of this period’s signaling percentage.(Taproot Watch)
Bitcoin’s next difficulty adjustment is in approximately nine days. This next adjustment will mark the third of six possible signaling periods under Taproot’s Speedy Trial activation process, which began on May 1.
Czechia-based Slushpool was the first mining pool to signal for the upgrade, followed by Foundry, F2Pool, Poolin and Antpool. Notably, mining pools have signaled, un-signaled and re-signaled for a variety of reasons so the signaling percentage can oscillate. Poolin’s signal, for example, dropped off in response to technical snafus while BTC.com’s recently changed its status from signaling to not signaling for unknown reasons.
What is Bitcoin’s Taproot upgrade?
Taproot is Bitcoin’s most anticipated upgrade since SegWit. The actual change, an alteration to two lines of code, is minimal, but Taproot will outfit Bitcoin with a new signature scheme known as Schnorr signatures.
These signatures pave the way for advanced transaction logic (what the cool kids call “smart contract”), which will make things like multisignature transactions cheaper and more data efficient (while also giving them a privacy boost by making them look the same as regular transactions on the blockchain).
In addition to multisignature wallets, the upgrade will be a boon for the Lightning Network and other Bitcoin technologies like discreet log contracts (DLC).
5. Bitcoin Price Plunge ‘Feels Like Capitulation,’ Says Galaxy’s Mike Novogratz
“These are certainly setbacks for the wallets and for the investor base,” the crypto investor told CNBC.
Galaxy Digital CEO Michael Novogratz told CNBC Wednesday that bitcoin’s morning price dip “felt like we had capitulation.”
His comments came as the price of BTC (-6.06%) tumbled below $40,000 for the first time since January.
“Capitulation” refers to the point in a market downturn when investors give up on recapturing lost gains and sell rather than hold a given asset.
The cryptocurrency investor told CNBC that “the crypto revolution has happened, but these are certainly setbacks for the wallets and for the investor base.” The original and largest cryptocurrency by market capitalization is now down by more than 30% in May alone, on track for its worst month since November 2018.
“The market will consolidate and find a bottom somewhere,” Novogratz predicted. “I’m hoping it’s close to here, $36,000 or maybe $38,000.”
Novogratz said there are several factors that have undermined bullish momentum recently, including the May 17 federal tax deadline in the U.S. and comments from Tesla CEO Elon Musk, who expressed caution about bitcoin’s environmental impact and said the carmaker would stop accepting BTC payments for its cars (though Tesla did not sell any of its holdings).
“Now we’ve got a liquidation event,” Novogratz said.
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May 20, 2021