Bitcoin Poised to Drag Crypto Market Lower | RTWM 1.39

10 min readJul 2, 2022

RekTimes Weekly Markets

Analyst: John N. Gettas

1 July 2022: This past week bitcoin closed the month of June below the 200 week moving average, below the realized price, and with the lowest RSI ever, at a price of $19,925. This equates to a 40% drop in price for the month of June which is the worst month in bitcoin history.

Key Takeaway — If anyone tells you we are just in a corrective phase of a bull market they don’t know what they are talking about

In the Know — Around the Cryptoeconomy

The market has experienced heavy volatility again over the past week, driven in part by liquidation fears and some unfavorable market news. This comes on the heels of major releases at NFT.NYC last week that saw DeFi jump 50%+.

Market Updates

Grayscale Bitcoin ETF Denied

Grayscale’s Bitcoin trust has been denied the ability to convert itself into a spot bitcoin ETF. This should come as no shock to anyone that follows Chairman Gary Gensler’s reign of the SEC as he is no friend to crypto.

Having said that, the market dropped on the news. Grayscale filed suit against the SEC in the US Court of Appeals for the District of Columbia Circuit. The SEC cited market manipulation as the concern.

Some took note of Grayscale’s recent partnering with trading firms Jane Street and Virtu as well as over 11,000 letters submitted to the SEC in support of the conversion to an ETF, to mean that approval was all but certain. They were wrong. This comes on the heels of Switzerland launching a new spot bitcoin ETF. The Netherlands will launch a spot bitcoin ETF in July.

Three Arrows Capital Liquidation

Voyager Digital issued a default notice on 3AC for failure to repay a loan consisting of 15,250 BTC and $350 million USDC. Days later, 3AC was ordered to liquidate by a court in the British Virgin Islands at a price of $20,073.62 based on the price at time of the order, June 29, 2022.

These liquidation events have corresponded with major declines in the Total Crypto Market, sinking Bitcoin far below its 200 WMA and cooling off hot DeFi projects. Certain DeFi blue chips like UNI & AAVE have fallen double digits over the past seven days.

BlockFi Bought Out

It was reported that BlockFi — once valued at nearly $5 billion — was just bought out by the major cryptocurrency exchange FTX for a miniscule value of $25 million. This equates to over a 99% drop in valuation for BlockFi.

The CEO of BlockFi Zac Prince did deny the valuation of the buyout but is actively going against the words of nearly every reporter in the space. FTX previously loaned BlockFi a massive sum of $250 million.

Turns out, the actual valuation is closer to $250 million based on performance incentives.

XRP Holders Whiff Again; Flare Network Airdrop Delay

Everyone that holds XRP has been eagerly awaiting an airdrop of the Spark token on the Flare Network for the past two years. This airdrop is experiencing yet another delay. It was announced less than three months ago that the airdrop would take place on July 4th but has since been postponed.

Instead the timeline will consist of an audit of token distribution contracts occurring on July 4th followed by a main net launch in observation mode on July 11th. Assuming all goes to plan, the airdrop will take place sometime after a two month observation.

For all those that don’t follow this story, Flare Network launched a test-net called Songbird which was created for the explicit purpose of testing the Flare Network. That’s the entire point of issuing a test-net. So why would they delay yet again? Because large exchanges that two years ago pledged to participate in this airdrop are now waiting for regulatory clarity on the SEC vs. Ripple case.

Why does this matter? Because large exchanges view all airdrops derived from XRP holdings as de facto securities. This is why exchanges like Bitstamp have refused to release Songbird tokens to USA residents while releasing the tokens to residents of non-SEC controlled jurisdictions.

Say what you will about loving or hating Ripple and XRP, this is proof (in my speculative mind) that large exchanges are communicating with Hugo Philion, co-founder and CEO of Flare Network, behind the scenes. Hugo and Team are hoping this delay will be timed with a settlement in the case. Two years in the making; I wouldn’t hold my breath.

Crypto Exchanges & CeFi

Celsius Fallout

When looking at the potential acquisition of Celsius by FTX, the deal looks to be off. Sam Bankman-Fried, founder of FTX, cited a “$2 billion hole” in Celsius’ balance sheet. Combine this with the allegations that Celsius’ CEO, Alex Mashinsky, was stopped by US authorities attempting to leave the country. It does not look good for anyone involved.

FTX/SBF

FTX acquired a 7.6% stake in Robinhood. It appears that SBF wants to acquire a majority interest in the company, further adding to its bear market pillaging of the finance sector.

“There are some third-tier exchanges that are already secretly insolvent.” — SBF
Acquired crypto trading platform Bitvo

Coinbase

Goldman Sachs changed its rating of Coinbase stock from neutral to sell with a price target at $45. This comes after initially having a buy rating when the stock traded in the upper $200s/lower $300s. So by following Goldman Sachs’ advice, a trader would have bought high and sold low, meaning retail is creating the liquidity for institutional investors to enter and exit positions.

Coinbase announced plans to combine the order books for USD and USDC effectively making them interchangeable This takes effect July 13th. Per Coinbase, this is an attempt to create deeper liquidity.

A sizable chunk of the comments under this tweet claim that Circle, one of the creators of USDC, is on the verge of collapse and that this information was disclosed in Circle’s SPAC IPO filing. Is this the case? I have no idea, but the frequent claim is something that our readers should be aware of when dealing with USDC.

Also note that Coinbase is involved in a joint venture with Circle named “CENTRE Consortium”. This joint venture is the entity that created USDC.

Rumors circulating that Coinbase sold user data to US Immigration and Customs Enforcement agency, ICE. This data consists of historical geo-data as well as transaction history. This is predicated on a leaked contract obtained by watchdog group Tech Inquiry. It was already known that Coinbase had a deal with ICE, but the details were unknown until now.

Why the focus on Coinbase? Because it is a publicly traded cryptocurrency exchange which means it is required to have increased disclosure compared to privately held exchanges, like FTX or Binance.US.

Legal & Regulations

Bitcoin Labeled Commodity

SEC Chairman Gary Gensler stated that Bitcoin is the only cryptocurrency he is prepared to publicly state is a commodity. This caused all sorts of Bitcoin maximalists to tweet out that bitcoin is the only commodity in crypto, which is flat out a lie. It is, though, the only crypto that has 100% regulatory clarity. Wording like this is used to keep things intentionally vague, as Chair Gensler has one main objective, to have complete control over the entire crypto market.

Roger Ver

O.G. crypto enthusiasts will remember a name, Roger Ver. He led the charge for the Bitcoin hard fork resulting in the creation of Bitcoin Cash back in 2017. Rumors are circulating that Roger Ver is getting margin called by CoinFlex, as CEO Mark Lamb tweeted out Roger Ver owes $47 million USDC. Roger tweeted out a statement claiming he does not owe any money to CoinFlex, but in fact they owe him a large sum.

SCOTUS Case “West Virginia v EPA”

The Environmental Protection Agency (EPA) attempted to regulate the emissions of power plants, specifically to limit emissions, by forcing the plants to shift to cleaner sources. This was determined to be outside the EPA’s Congressionally created authority.

Some in the world of crypto are wondering if this can be applied to the SEC with Chairman Gensler overstepping his Congressionally created authority. I, John N. Gettas, am willing to bet the answer is no; this case will have no bearing on the SEC with respect to crypto. Why?

Because the Supreme Court of the United States (SCOTUS) has already created a framework to determine what is and is not a security. This framework is known as the Howey Test. It’s a four-pronged test, and can be interpreted very broadly to encompass the vast majority of crypto projects.

an investment of money,
in a common enterprise,
with the expectation of profit and
to be derived from the efforts of other

The vast majority of crypto projects start out as centralized so a retail investor will buy tokens (invest money), expecting the token value to go up (expectation of profit), while other people make the crypto project network grow (derived from the efforts of others).

To summarize, because of the Howey Test — don’t expect the SEC to back off from crypto regulations.

Miscellaneous

MicroStrategy

MicroStrategy purchased an additional 480 bitcoin for an average price of $20,817 equating to roughly $10 million. This puts the company’s grand total bitcoin holding at 129,699 bitcoins with an average price of $30,664 per bitcoin.

El Salvador

El Salvador bought an additional 80 BTC at an average price of $19,000, per president Nayib Bukele, equating to $1.52 million. This puts the grand total of bitcoin in El Salvador’s coffers to 2,381 BTC. At the same time, El Salvador is planning to build a $200 million solar-powered bitcoin mining facility.

Polkadot (DOT) Gov2

Polkadot founder Gavin Wood announced plans for a new decentralized governance model named “Gov2”.

Tether

Tether is under attack by large hedge funds taking on hundreds of millions of dollars in leverage for the purpose of shorting USDT. According to the CTO of Tether, Paolo Ardoino, these same hedge funds have been spreading rumors that USDT has exposure to Evergrande and Chinese Community Party in order to create the fear needed to destabilize the stablecoin.

Crypto Market Analysis

All signs have pointed over the past week to Bitcoin being the main asset that is dragging down the Total Crypto Market. The world leading cryptocurrency is well below its 200 WMA, confirming the $22k level now as strong resistance.

With major liquidations and insolvency contagion spreading amongst centralized finance options like Voyager, Celsius, BlockFi, & more, Bitcoin appears poised to create deeper losses in the market.

Ethereum and the Total Crypto Market are attempting to hold support at the 200 WMA , but this should not expect to hold against immense selling pressure from Bitcoin. This is not to say there isn’t reason for optimism — DeFi had a tremendous rally last week and altcoins have continued to show relative strength versus the broader market.

There is also the popular prospect of the coming Ethereum Merge with PoS — a massive network shift that is expected to make ETH deflationary in nature.

Risk-reward still favors buyers in this situation — especially against ANYONE who bought crypto in 2021 or 2022. In fact, buyers from 2017 highs are actually underwater after Bitcoin posted its worst quarter in its entire history.

Sentiment appears relatively split between extremes — with many either expecting a harsh continuing decline in the bear market or believing crypto is now at the bottom. Predicting either in this environment is foolish.

RekTimes Updates

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