Notes 1/14: Bitcoin Price, A New Crypto Exchange

What came first?

The narrative or the price?

In Bitcoin’s case, it is the latter.

After dithering in the $16,000 to $17,000 range for the last two months, the cryptocurrency’s price gathered pace and hurtled past successive milestones last week.  On Monday, Bitcoin was changing hands for $17,207. As of this writing, it is trading at $20,840.20, up almost 5% from its price a day earlier. Bitcoin price swept past the $21,000 mark at one point before retrenching its gains.

Because Bitcoin price sets the momentum and trajectory for crypto markets, its swell has helped lift the total market capitalization of crypto markets to $979 billion, an increase of almost 4% in the last 24 hours. Ethereum’s ether has been among the biggest gainers, rising by roughly 21.3%. That increase occurred amid positive conversations about ether’s staking prospects after the Shanghai Upgrade towards the end of this quarter.

The upgrade will enable investors, some of whom have staked or locked in their ether for as long as two years, to retrieve and sell their coins. Conventional wisdom would dictate that selling pressure from all those staked ethers coming into the market would induce a fall in its price.

But ether’s proponents insist that a flexible staking period post the upgrade will result in more numbers of the digital asset being staked and cause its price to move upwards.

The Latest Bitcoin Price Narratives

That hypothetical brings us back to the question posed earlier about crypto price narratives. The rally in bitcoin price and the broader crypto markets, is occurring at a time when there is not much cause for celebration in its ecosystem. The SEC filed a case against two of crypto’s biggest operators last week and the fall of another major player is imminent.

Bitcoin does not report profits or losses, nor does it have a cash flow. Its so-called “whales” – traders who can affect its price – consist of anonymous online wallets. To explain the puzzle that is bitcoin price, then, analysts are scrambling to formulate conjectures and theories about its price movements.

Two Days, Two Theories

There is no shortage of either.

It was positive inflation data, which came in lower than expected, that bumped up bitcoin price the day it crossed $19,000. Less inflation is supposed to be good news for assets like bitcoin because it means that the Fed’s aggressive rate hike increases, which siphoned investor cash away from risky instruments towards the safety of government securities, will end soon. With more cash on hand, investors might revert to their pandemic habits of pushing up crypto prices.  

The problem with this line of thinking is that it disregards the prevailing situation in crypto. After the seismic upheavals in cryptocurrencies in the last seven months, only foolish or inept traders would consider putting money into the asset class.  

The next day’s jump was supposed to be a short squeeze by traders exiting their positions. [A short squeeze occurs when traders sell out their short positions and temporarily inflate prices]. There are also fancy charts to accompany this explanation. But the same market was supposed to be suffering from low liquidity some days ago.

A Blockchain Narrative

While the narrative of correlation with the surrounding economy sounds tempting, it might be a better idea to check the fundamentals of bitcoin’s blockchain for hints to its price action.

The decks were being cleared for bitcoin’s current price increase in the last couple of weeks. The difficulty level of its algorithm has been declining since the start of this year, making it easier for bitcoin miners to win new coins and increase its circulating supply. Trading volumes at Binance’s spot and futures markets for bitcoin rose in the first week of this year. Together, both markets account for a significant chunk of overall trading volumes for bitcoin.

A New Crypto Exchange  

The seemingly unending bankruptcies and scandals in crypto, one would have thought, would have dimmed appetite for trading crypto. Not so. While browsing through PR releases, I came across news about the launch of yet another crypto exchange.

Voltcoins is based in Lithuania and offers four coins – Bitcoin, Ethereum, Tether, and Litecoin – for trading. It is owned by Clearcrest Inc. – a firm that is seven months and 10 days old and has an authorized capital of 125,000 euros. It has exactly one employee based on online records.

One of the company’s board members, who has an expertise in KYC and AML, is looking for work according to LinkedIn. Voltcoins claims to have a “cutting edge mechanism for the exchange of crypto.” Interestingly, the news release mentions FTX, one of the few places with a Tether/USD trading pair, before it collapsed.

You can also purchase Tether using USD at Voltcoins. That would make it one of the only few places where you could exit and enter a trade using the world’s biggest stablecoin.

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