233
If you want more cryptocurrency analysis including full-length research reports, trading signals, and social media sentiment analysis, use the code "Publish0x" when subscribing to CryptoEQ.io to make your first month of CryptoEQ just $10! Or just click the button above!
After a quick drop in price beginning last week, Bitcoin (BTC) and most altcoins are heavily in the red. Bitcoin is down ~25% in the last couple weeks and currently trades for just under $50,000. On Friday, December 3rd, BTC collapsed to ~$43,000 in mere hours thanks to forced liquidation selling.
Source: Delphi Digital
Although assigning blame to any price drops is a fool’s errand, we won’t take our own advice. Liquidations of leveraged futures positions likely played a key role. Sudden price drops can trigger further liquidations, creating a nasty flywheel or “snowball down the mountain” effect. This was probably exacerbated by low trading liquidity on the weekends.
Bitcoin leveraged longs got hammered over the last week. BTC’s open interest on perps/futures fell from just under $30B in late November to just over $15B today. Additionally, there were ~$2B worth of liquidations just over the weekend across all crypto assets.
Cryptocurrencies began falling after a stock market sell-off on Friday due to a disappointing jobs report and Omicron uncertainty. As investors sold off tech stocks, negative sentiment crept into the crypto markets. The correlation between the stock market and Bitcoin has been growing over the last couple months. BTC finished November with a modest positive correlation to equities. However, with stocks near record highs, Omicron uncertainty, and high inflation prints,, the crypto market remains vulnerable to the macro environment overall.
The Fear & Greed Index also hit Extreme Fear this week which often coincides with a big price drawdown. Although there still remains a fair amount of uncertainty with macroeconomic markets, easing the Fed’s bond buying program and supply-chain struggles still having a significant impact on global business.
Aside from price action, President Joe Biden signed into law the Infrastructure bill containing the controversial cryptocurrency amendment early in November. The bill aims to collect up $20+ billion over the next decade through increased crypto taxation and scrutiny. The most criticized portions of the amendment pertains to tax reporting mandates for crypto “brokers” and section 6050I, which criminalizes entities failing to report crypto transactions over $10,000 to the IRS.
Section 6050I is controversial because it would be impossible for most entities to comply. The original intent of the 1984 law was to discourage in-person cash transfers and promote the use of financial institutions for such transactions. Basically, introducing middle-men (banks) for oversight and surveillance. However, a 40 year old law targeting physical cash has proven ill-fitting for this new age of peer-to-peer digital transactions and NFTs.
Under the current interpretation, the receiving entity would be required to report countless personal information about the sendee. This could apply to miners, stakers, lenders, dApps, traders, and individuals.
Even though the bill has seemingly passed, it will not go into effect until 2024. This gives the crypto community, lobbyist, and Congress time to amend the provision for a more workable solution. Since Biden’s signature, 10+ members of Congress have joined forces to advocate for changes to the definition of a broker in the infrastructure bill.
Outside the U.S. the Indian government has announced it intends to submit a bill that would effectively ban most cryptocurrencies in the country. Many are speculating that India could ban private cryptocurrency prior to releasing their own central bank digital digital currency.
