Crypto Daily News from ZBG Exchange

1. Market Wrap: Higher Inflation Expected to Send Bitcoin and Gold Higher Into End of Year

Bitcoin hit an all-time high Wednesday before falling back.

Bitcoin reached an all-time price high of about $68,950 on Wednesday after a report showed higher-than-expected inflation in October. The cryptocurrency eventually returned some gains as short-term overbought signals appeared on the charts.

Gold also rose to its highest level since June following the U.S. inflation report. The precious metal reversed its negative correlation with bitcoin on Wednesday as seen in the chart above.

“The knee-jerk reaction to the hottest inflation reading in 30 years triggered risk aversion which was accompanied with a strong dollar and weakness across the top cryptos,” Edward Moya, an analyst at Oanda, a foreign exchange brokerage firm.

“Wall Street is quickly realizing that inflation is not fading just yet and demand for inflation hedges will remain strong into the end of the year,” Moya wrote.

Latest Prices

Bitcoin (BTC): $65,916.17, -2.37%

Ether (ETH): $4,641.23, -3.04%

S&P 500: $4,464.71, -0.82%

Gold: $1,852.17, +1.23%

10-year Treasury yield closed at 1.563%.

Get ready for stagflation

“Our view that there has been a profound paradigm shift in the global economy: The risk of inflation being durably above official targets is now a serious risk, and it is featuring prominently in corporate and household decisions once again,” Deutsche Bank strategists wrote in a research note on Wednesday.

In response to the inflation report, Deutsche Bank lowered its near-term economic growth forecasts and said it now expects a period of “stagflation” — a period of stagnant demand and high inflation.

“For markets, financial conditions remain incredibly accommodative by historic standards, and even as break-evens [market-based inflation expectations] have risen over the last couple of months,” Deutsche Bank wrote.

2. Bitcoin Jumps to New All-Time High as Inflation Spikes to 6.2% in October

Bond traders are increasing their bets on faster inflation after the U.S. consumer price index jumped 6.2% in the 12 months through October, the highest rate in three decades. Still “transitory?”

Perceived store-of-value assets like bitcoin and gold are rising as investors reassess the stickiness of inflation in the wake of a hotter-than-expected October reading in the U.S. consumer price index (CPI).

The price of bitcoin (BTC) has increased by nearly $3,000, hitting a new record high of $68,950, since the Labor Department’s CPI report was released at 13:30 UTC (8:30 a.m. ET).

“It is eye-opening to see the price react so spectacularly in this way,” Simon Peters, crypto asset analyst at the trading platform eToro, said in an email.

The report showed that the cost of living in the U.S. rose 6.2% in October from a year earlier, the fastest since 1990. Core inflation, which strips out the volatile food and energy component, rose 4.6%, the highest pace since August 1991.

The new data could provide a fresh test for Federal Reserve Chair Jerome Powell’s characterization of the inflation threat as “transitory” — the idea that upward price pressure will subside once the global economy has fully reopened from coronavirus-related restrictions and supply-chain bottlenecks and other issues are temporary.

The inflation increase was “broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks and new vehicles among the larger contributors,” the Labor Department’s Bureau of Labor Statistics said in its statement.

Bitcoin is now trading 2.7% higher on the day. Based on a price-chart analysis, a descending trendline breakout seen on the hourly chart has exposed the psychological resistance at $70,000.

Bitcoin rallied 40% in October. The popular narrative was that the launch of a bitcoin futures-based exchange-traded fund (ETF) would bring in mainstream money, pushing up demand for the cryptocurrency and thus the price.

But analysts at JPMorgan attributed the rally to rising inflation expectations and bitcoin’s appeal as a hedge against rising prices.

3. SEC Stops Wyoming-Based DAO From Registering 2 Digital Tokens

The agency is alleging that American CryptoFed filed a “materially deficient and misleading registration form.”

The Securities and Exchange Commission (SEC) stopped a Wyoming-based decentralized autonomous organization (DAO) from registering two digital tokens as securities, the agency said on Wednesday.

In the announcement, the SEC’s Enforcement Division alleged that on Sept. 16, American CryptoFed “filed a materially deficient and misleading registration form known as a Form 10, which purported to register two digital tokens issued by the company — the ‘ducat’ and ‘locke’ tokens — as equity securities.”

The SEC alleged that this form lacked mandated information about the tokens and American CryptoFed’s business, including audited financial statements. It also alleged that Form 10 misstated and omitted information, including whether the ducat and locke tokens are securities.

In September, American CryptoFed filed an S-1 form to register the tokens with the SEC for use in a secondary market, and in refundable auctions at a high value than their original purchase price from CryptoFed. In the filing, the company described the ducat and locke “as utility tokens, not as securities.”

In July, Wyoming legally recognized American CryptoFed. That determination came after the state became the first in the U.S. to recognize DAOs as a type of limited liability company.

In its announcement Wednesday, the SEC also said that in an S-8 form, an SEC registration form that allows companies to offer employees securities through employment benefit plans, American CryptoFed had failed to disclose that completing the form would not legally allow for the distribution of the tokens.

“Issuers attempting to raise money from the public must provide the information necessary for investors to make informed decisions,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “We allege American CryptoFed made materially misleading statements and failed to provide legally required information in its registration form.”

An administrative law judge will decide whether to deny or suspend the tokens’ registration, the SEC said.

4. First Mover Asia: Bitcoin Declines After Reaching a Record High; Ether Also Drops

The dip in bitcoin occurred after news that China Evergrande Group had failed to pay at least some of its international investors interest payments on bonds the real estate giant had issued.

Bitcoin faced a pullback below $65,000 in the past 24 hours, a more than 4% decline, after it surpassed $69,000 for the first time in its history during U.S. trading hours on Wednesday. Ether fell to about $4,600, a roughly 3% drop.

The sharp dip came after news that China Evergrande Group failed to pay at least some of its international investors interest payments on bonds the real estate giant issued, raising more concerns about a potential default of the company.

The market perceived the new record price above $69,000 as a reaction to the newly published U.S. Consumer Price Index, which jumped to its highest level in three decades.

Data collected by CoinDesk also shows Wednesday’s rally was not supported by strong trading volume. It was lower on Wednesday than it was on Monday and Tuesday across major centralized exchanges.

As David Morris wrote, the deeply indebted Chinese real estate developer has been an important factor to the much broader financial market, crypto included. With its roots in China and worries about Tether’s holdings of Chinese debt, investors may want to watch how Asia’s crypto markets react on Thursday.

Bitcoin Pulls Back From All-Time High, Support Between $63K-$65K

Bitcoin was slightly lower, trading around $65,000 at the time of publication, although buyers could hold support above $63,000-$65,000 into Asian trading hours.

Intraday charts are showing initial signs of upside exhaustion, which typically lead to a brief pullback in BTC’s price. For example, the relative strength index (RSI) on the four-hour chart continues to hover near short-term overbought levels.

Still, upside momentum signals are improving on the daily price chart for the first time since Oct. 1, which preceded a price rally from $44,000. This suggests that buyers could remain active on pullbacks.

Two consecutive daily closes above an all-time price high would yield further upside targets, initially toward $86,000.

5. LUNA Hits All-Time High as Terra Community Passes Popular Burn Proposal

The burning marks one of the largest, if not the largest, layer 1 token burnings in crypto history.

The Terra community on Tuesday night passed a popular proposal to burn about 88.7 million terra (LUNA) tokens, worth roughly $4.5 billion at current prices, and mint about 4 million to 5 million terraUSD (UST) stablecoins, a decision that should further boost the Terra project, according to analysts.

The “burning,” or permanent removal of the tokens from circulation, will be executed over the next two weeks, with an initial burn of 520,000 LUNA that already took place Tuesday night. At press time, LUNA was changing hands at $53.74, up 7.03% in the past 24 hours, according to TradingView and Binance. Its price set a new record high $54.95 at around 11 a.m. ET (16:00 UTC) Wednesday.

Initiated by Terra’s co-founder Do Kwon, the measure aims to fund new services in the Terra ecosystem, including Ozone, an insurance protocol that “facilitates levered coverage of technical failure risks” in any decentralized finance (DeFi) protocol built on Terra, according to a community post by Kwon. It also marks one of the largest burns of a major layer 1 token in crypto history, according to Terra’s official Twitter account.

“A large portion of the burn — $1 million and more — will go towards capitalizing a new insurance protocol for the Terra ecosystem called Ozone,” Ryan Watkins, research analyst at Messari, said. “This is an important piece of the ecosystem that should promote more safety for users.”

The decentralized finance (DeFi) sector has been facing a growing number of hacks of late. Data from Rekt shows that DeFi protocols have suffered more than 50 hacks worth over $1 million in the past two years.

Terra blockchain is the fourth largest smart contract platform by total value locked (TVL) at $11.36 billion, according to data from DeFi Llama. TVL is the total value of the cryptocurrency committed to DeFi protocols that are built on a layer 1 blockchain.

LUNA is part of an algorithmic balancing system that helps stablecoins running on the Terra blockchain maintain parity with fiat currencies.

There were some initial doubts among those in the Terra community around the burning proposal, as shown in the proposal’s page. Some users asked whether burning nearly 89 million LUNA was too much.

Terra’s Kwon told CoinDesk that the burning proposal was also intended to reduce the amount of wealth in Terra’s community pool.

“At the [fully diluted market value] of the network at almost $40 billion, I think having a community pool that is too large is actually a systemic risk,” Kwon said. “I believe community funds should be just large enough to pay for public services. … But a DAO [decentralized autonomous organization] doesn’t need billions of dollars to operate.”

Before Terra’s Columbus-5 upgrade at the end of September, the community pool was set to receive $1 worth of LUNA from users when UST traded above $1. In return, users would receive 1 UST. The Columbus-5 upgrade also shifts the design to burning LUNA: Whenever UST is minted, LUNA with the same amount of value is burned instead of going to the community pool.

The burning will also ultimately benefit LUNA stakers, said Jeremy Ong, vice president of business operations at crypto research boutique firm Delphi Digital.

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November 11, 2021

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