First Mover: Don’t Like $34K Bitcoin? Stellar, Litecoin Yet to Conquer Old Highs

Bitcoin snapped a four-day losing streak, appearing to stabilize around $34,000. After the recent market correction, prices for the cryptocurrency are still up 18% year-to-date, versus a 1.2% gain for the Standard & Poor’s 500 Index of large U.S. stocks.  

“Now is probably not the time to panic,” Matt Blom, head of sales and trading at the cryptocurrency exchange firm Diginex, wrote in a daily newsletter. 

In traditional markets, European shares fluctuated and U.S. stock futures were little changed as the U.S. House of Representatives on Wednesday prepared to vote on a second impeachment of President Donald Trump. Gold strengthened 0.1% to $1,855 an ounce. 

Market Moves

As bitcoin and ether retreat from recent highs, the strong performance of other cryptocurrencies shows that traders and investors may now be turning to alternative tokens, often referred to as “altcoins,” for returns.

Bitcoin prices as of Jan. 11 stood at about 87% of their all-time high reached last week, and ether is about 78% of the way toward its all-time high from a few years ago, based on data compiled by CoinDesk Research. 

But other cryptocurrencies and digital assets, such as stellar (XLM) and litecoin (LTC), are still far from setting new records. One takeaway might be that they might have further to run, CoinDesk’s Muyao Shen reported Tuesday.

Altcoins are surging “in ways that we have not really seen since 2017,” Andrew Tu, an executive at quant firm Efficient Frontier, told Shen.

It’s possible, of course, that some entry-level investors viewing bitcoin’s $34,000-ish price – what a small sport-utility vehicle costs – are unaware that the largest cryptocurrency can be bought in minute fractions, similar to the way that it’s possible to buy $100 or $1,000 of gold. 

Such confusion in the past has led some newbie investors to turn to altcoins, because their prices are often comparatively lower, sometimes counted in cents. 

David Derhy, an analyst at the trading platform eToro, wrote earlier this week that some traders might shift toward ether, the base cryptocurrency for the Ethereum blockchain.   

“Investors in bitcoin may be looking to take some profits and reallocate, and ether could be a target,” he wrote. “A target of $2,500 is reasonable given the gains we have already seen and current price momentum.” Such a level would represent a gain of nearly 150% from the current price. 

Simplex, a digital-asset platform, has been seeing “increasing demand for cryptos across the board,” though “retail investors seem to be looking for the next BTC,” CEO Nimrod Lehavi, wrote in a Google doc, sent by a spokesman via Zoom’s chat function.

“We are used to seeing BTC dominate around 90% of the total volumes of trade,” says Jonathan Leong, CEO of BTSE, another crypto platform. “But the recent week or so has seen a rise in our institutional clientele’s demand and interest in altcoins, with the balance being almost 50/50 at certain times.”

Bitpanda, an Austrian cryptocurrency platform, has seen bitcoin drop to between 30% and 40% of customer purchases this year, from 40% to 50% last year, according to a spokeswoman.  

“We have a big influx of users, and they are trading both bitcoin and altcoins,” the spokeswoman, Sara Moric, said in an email.

– Muyao Shen and Bradley Keoun 

Bitcoin Watch

The near-term outlook for bitcoin has dimmed, analysts say, with some now seeing a possible extension of Monday’s major price drop.

“There could be another dump as outflows from the cryptocurrency exchange Coinbase Pro have dried up alongside an increased transfer of coins onto exchanges,” David Lifchitz, chief investment officer for Paris-based quantitative trading firm ExoAlpha, told CoinDesk.

Outflows from Coinbase Pro – considered a proxy for purchases of the cryptocurrency by big institutional investors, since the outflows are typically seen as transfers into cold storage for long-term holding – have receded sharply from the three-year high of 55,000 BTC  observed Jan. 2. 

The decrease could signal a weakening in institutional demand, which played a pivotal role in pushing bitcoin last week to a new all-time high above $41,000, from about $10,000 just a few months ago.

Meanwhile, exchange deposits have gathered pace, a sign that some investors may be looking to liquidate holdings and take profits. 

The number of coins held on exchanges increased by over 57,000 BTC on Tuesday, the biggest single-day change since March 2020, according to data from blockchain analytics firm Chainalysis. Exchanges have registered an average inflow of 103,000 BTC per day in the past seven days – higher than the 180-day average of 83,700 BTC.

Some analysts looking for clues in price-chart patterns are also calling for an extension of Monday’s drop. The Ichimoku cloud, a technical-analysis tool created by Japanese journalist Goichi Hosoda in the late 1960s, includes multiple lines that help identify support and resistance levels and other essential information such as trend direction and momentum.“

“I still see pressure on the downside in the short-term,” said Patrick Heusser, head of trading at Swiss firm Crypto Finance AG, adding that $29,000 could be the make-or-break level. “Things could get ugly if that support is breached,” Heusser said. A price of $36,000 is the level to beat for the bulls. 

Chris Thomas, head of digital assets at Swissquote Bank, sees a period of price consolidation over the rest of this week, in the $33,000–$36,000 range.

– Omkar Godbole

What’s Hot

European Central Bank’s Lagarde calls bitcoin “speculative asset,” hopes for digital euro in no more than five years (CoinDesk) 

“Could the OCC even grant a national bank charter to open-source software that manages deposit-taking, lending, or payments, if it doesn’t have officers or directors?” writes Acting U.S. Comptroller of the Currency Brian Brooks, in an op-ed. “Not yet. Under current law, drawn up on the assumptions of the early 20th century, charters can only be issued to human beings” (Financial Times)  

When Goldman Sachs’s head of commodities research tries to value cryptocurrencies, he starts by imagining the sector doubling to $2T (CoinDesk) 

Bitcoin options volume on Deribit already 25% of 2020 total (CoinDesk) 

Bitcoin whales kept accumulating during Monday’s crash (CoinDesk) 

Coinbase apologizes for “recent customer experience issues” in UK and EU (Coinbase)

Tron is out, Dai is back, in latest changes for CoinDesk 20 (CoinDesk Research) 

“For all the billions we have in defi right now, if you strip away the subsidies (paying for users), this number will collapse,” YearnFinance creator Andre Cronje writes in Medium post (Medium)  

CEX, lies and videotape: Binance accuses rivals of fighting dirty (CoinDesk) 

Winklevoss twins’ Gemini cryptocurrency exchange sees big jump over past year in bitcoin balances (Coin Metrics): 

Analogs

The latest on the economy and traditional finance

Switzerland’s UBS to charge clients negative 0.75% interest rates on cash balances greater than 250K Swiss francs ($280K) (Reuters) 

Former U.S. CFTC Chair Gary Gensler said to be Biden’s pick for SEC chair (CoinDesk)

Brian Brooks, acting U.S. Comptroller of the Currency and former Coinbase general counsel, plans to step down in the next few days, Politico reports (CoinDesk). (SEE ALSO: Brooks op-ed featured above, in What’s Hot.)  

Zombie firms, or inefficient companies kept alive by cheap debt, could swell due to generous government lockdown-support programs, representing big risk for banks (WSJ)

World Bank Chief Economist Carmen Reinhart warns that household and business balance sheets might be overwhelmed by pandemic-related debt, potentially leading to a financial crisis (Bloomberg) 

Remote-working revolution to fundamentally alter the way managers operate (Reuters) 

Traders now watching bitcoin for clues about stock market’s direction (CNBC)

Federal Reserve Bank of Dallas’s Robert Kaplan hopes economy will be ready for conversation about tapering Fed’s $120 billion-a-month of asset purchases later this year (Bloomberg) 

ICYMI: “Central banks show no inclination of moderating their huge stimulus,” Allianz’s Mohamed El-Erian writes in op-ed (Bloomberg Opinion) 

The U.S. Federal Reserve is focusing on the positive medium-term prospects for jobs based on the success of a coronavirus vaccine (Reuters)

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