Digital Assets Morning Call: June 21, 2022

Written by Robert Lynch
on June 21, 2022

Recovery from weekend cycle lows comes with caveats

Crypto token bounce is a relief

But the overall backdrop remains guarded

A new short bitcoin ETF is launching

As is often the case in the crypto market, the price action is the biggest news in the space. And that has especially been the case in recent days.

A sizeable bounce off the new cycle lows reached on the weekend

Today’s gains in Bitcoin (BTC) and Ether (ETH) brought them back up to $21,000 and $1,100 respectively, which is not far from where they traded late last week. But those levels represent more substantial gains from the weekend selloff which saw bitcoin hit $17,600 and ether reach $880 (using TradingView data). Hence, that puts current levels up roughly 18% and 29% for bitcoin and ether respectively from the Saturday/Sunday lows.

Capitulation? Possible but not clear

Some market commentators suggest the weekend selloff saw signs of “capitulation” in crypto tokens, where more investors had given up on their long positions and cut them in order to avoid sustaining even larger losses. That may very well be the case but frankly it is difficult to assess and may only become apparent in hindsight.

Bounce is in line with risk assets today

What we can say is that the selloff had left the market very one-sided which, in turn, increased the potential for a corrective rebound, which appears to be what is happening now. Importantly and in line with the pattern that has prevailed for much of this year, the bounce in crypto token prices is concurring with a rise in risk assets more broadly, highlighted by the approximate 1.7% rise in the Nasdaq Composite Index futures ahead of the cash market open.

Crypto lending platform issues persist

In terms of the crypto lending issue that has become a more pronounced drag on token prices since lending platform Celsius suspended withdrawals last week, there has been little obvious resolution. Instead, another crypto lending platform called Bable Finance also suspected withdrawals last Friday. These developments continue to create immediate headwinds for token prices.

Macro factors better factored in

Fundamentally, it is the case that the latest evolution in the macro backdrop, including Fed tightening expectations and increased recession risks, are now better reflected in prices of financial assets broadly, including crypto. And that may also alleviate some of the immediate selling pressure.

This is no time for complacency as the overall backdrop and near-term sentiment has deteriorated. One potential sign to monitor will be the extent to which selling interest appears on more sizeable gains (should those gains develop). Some amount of selling is to be expected. But selling that prevents a more substantial recovery in token prices could indicate that those flows will still dominate in the near-term, and outweigh those who have been using the selloff to accumulate positions for their longer term bullish strategies.

Sign of the times

ProShares announced the launch of the first US approved ETF that allows investors to short bitcoin. The ProShares Short Bitcoin Strategy ETF will trade under the ticker BITI and starts trading today, and will obtain its exposure through the bitcoin futures contracts which trade on the Chicago Mercantile Exchange.

Some may say the new fund has arrived somewhat late given that bitcoin has already fallen so far from its peak last November. However, beyond providing an outlet to short bitcoin, it also an exchange traded vehicle—and therefore more institutionally accessible product—for institutional investors to hedge their positions. And that is another welcome sign of maturation in the crypto token investment space.

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Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.