CoinDesk Crypto

Bitcoin mining farms in Texas have gone offline because of a massive winter storm that drained the state’s power grid.

While some mining farms have stopped operations due to power outages, others are selling electricity back to the grid at a premium, said Ethan Vera, co-founder of Luxor Tech, which is a U.S.-based crypto mining company. Most mining farms are offline, Vera said. 

Due to the Texas outage, hashrate generated from Luxor’s mining pool has decreased by 40%. The majority of hashrate for the entire mining pool comes from the U.S. mining farms, Vera said. 

Related: Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum

While it is not clear what exact percentage of hashrate in the global mining pool is from Texas-based facilities, some of the largest bitcoin mining companies, such as Bitmain and Layer 1, have operations in Texas because of the state’s cheap electricity. 

Crypto mining giant Bitmain built one of the world’s largest bitcoin mines in Rockdale, East Texas, in 2019. Peter Thiel-backed crypto mining company Layer1 Technologies started operating its bitcoin factories in West Texas in early 2020. Publicly traded bitcoin mining company Argo Blockchain (ARB) announced last week it intended to acquire land to build mining facilities in West Texas. 

Some mining farms are taking advantage of the situation by selling local residents their unused electricity.

“Some bitcoin miners were able to capitalize on selling their unused energy back to the grid for a huge profit,” JP Baric, CEO of Texas-based crypto mining company MiningStore, said on Sunday. 

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

Texas’ power grid has already lost a small portion of energy production over the last weekend because wind turbines were frozen and natural gas available to electric plants became scarce, according to Dan Woodfin, senior director of The Electric Reliability Council of Texas (ERCOT). 

By Sunday all types of energy sources, including nuclear plants, coal plants and thermal generators, were falling off the grid due to the winter storm, Woodfin said, according to a report in the Austin American Statesman.

According to TechCrunch, about 30 gigawatts worth of energy is offline, with 26 gigawatts of that from thermal energy and the remainder coming from wind sources. 

The impact of the extreme weather conditions on bitcoin mining facilities goes beyond the Lone Star State. Mining farms in Kentucky have also been negatively affected by the storms.   

Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Brazilian asset manager Hashdex has launched the world's first crypto exchange-traded fund (ETF), the Hashdex Nasdaq Crypto Index ETF.

Coinbase’s waitlist for Ethereum 2.0 staking is live.

Per a blog post shared with CoinDesk, Coinbase customers can now sign up to stake their ETH into the Beacon Chain smart contract, the coordinator and bridge between the old Ethereum and Ethereum 2.0, the network’s momentous migration to a proof-of-stake network.

This upgrade will do away with proof-of-work mining in favor of staking. Typically, you need 32 ETH to run a validator node for Ethereum’s new blockchain, but Coinbase will allow their users to stake any amount of ETH in their account.

Related: Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum

Rhea Kaw, a senior product manager for Coinbase’s retail team, told CoinDesk that Coinbase users could earn up to 7.5% APR on their staked ETH, depending on the Ethereum network’s variable rate of return.

In exchange for the service, Coinbase “take[s] a commission on all rewards received, and the return rate for our customers reflects this commission,” Kaw said. Per Coinbase’s User Agreement, this staking commission is 25% of the rewards received. 

In addition to the forthcoming Ethereum staking option, Coinbase users can also stake Algorand (ALGO), Cosmos (ATOM) and Tezos (XTZ) tokens.

Besides Coinbase, Kraken exchange also stakes ETH on behalf of their customers and is actively depositing ETH into Ethereum 2.0’s Beacon Chain contract. Popular web and software wallet MyEtherWallet supports in-app Eth 2.0 staking as well.

Ethereum 2.0: Ethereum’s big leap

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

The “Beacon Chain” – the backbone of Ethereum’s new design – went live in December and so did Ethereum 2.0’s deposit contract. To claim a stake in the new network, Ethereans can deposit legacy ETH into this contract to convert it to ETH2 (aka Beacon Chain ETH, or BETH).

Once ether is deposited into the Beacon Chain, it cannot be withdrawn directly – however, using an exchange will be one way of getting around this restriction. Kaw told CoinDesk that “initially, [Coinbase] customers will not be able to sell or send the portion of [ether] that they choose to stake. However, Coinbase is exploring avenues by which to give customers a way to trade their staked ETH very soon.”

“All [ether] will ultimately automatically migrate to ETH2 once the network has been fully updated,” Kaw concluded.

There is currently $5.5 billion worth of ether locked in the Beacon Chain deposit contract.

Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Sound bites

Purpose Investments CEO Som Seif, speaking on CoinDesk TV, said there have been measurable improvements made to the infrastructure supporting the crypto economy. In fact, he thinks it would have been a mistake three years ago if regulators had approved a bitcoin exchange-traded fund when his firm first floated an application. 

“So much work has been done in the backend of this, the plumbing, to effectively allow something like this. I think the regulators are comfortable,” Seif said. Purpose is the first North American firm to release a regulated crypto ETF. 

Three stories

1. Volatility hasn’t shaken institutional interest in bitcoin. Bitcoin whipsawed early this week, dropping $3,000 in early Monday trading and setting a new high above $50,000 on Tuesday.

• In the options markets, bearish bets are consolidating around the $40,000 mark – meaning traders are not predicting an extended/sustained price drop below that figure.
• That said, “long tech” has retaken its spot as the “most-crowded trade” in the financial markets, according to a Bank of America survey, though bitcoin is close behind.

Related: Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum

2. Two of bitcoin’s most prominent backers, NYDIG and MicroStrategy, are doubling down on their crypto plays.

• NYDIG, Stone Ridge Asset Management’s bitcoin spin-off firm, has filed with the U.S. Securities and Exchange Commission for a bitcoin exchange-traded fund (ETF) that would trade on the stock market, like AAPL or TSLA. (The SEC has been hesitant to approve these investible products.)
• MicroStrategy is planning to buy as much as $690 million more bitcoin, announcing an additional wave of convertible notes. MicroStrategy’s BTC horde is worth more than $3.5 billion.

3. Ripple is unlikely to settle with the SEC according to the latest filing in the case. Previous settlement discussions that took place under the Trump administration have been disrupted, as the division directors involved have since left the SEC.

• In December, the SEC sued Ripple over alleged violations of federal securities laws. It said the company, CEO Brad Garlinghouse and Chairman Chris Larsen sold over $1 billion in XRP to retail investors without registering the cryptocurrency as a security or seeking an exemption.

At stake

Regulatory wheel
The slow wheel of regulatory progress could be driving cryptocurrency investors underground. And it’s a global phenomenon.

In one such example, Hong Kong’s security regulator has proposed rules to limit cryptocurrency trading to professional investors and only on approved exchanges. This could drive the retail crowd towards unregulated peer-to-peer platforms, according to industry advocacy group Global Digital Finance (GDF). OKCoin, BitMEX and Coinbase are all GDF members.

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

“Restricting cryptocurrency trading to professional investors only is different to what we have seen in other jurisdictions such as Singapore, the U.K. and the U.S., where retail investors can buy and sell virtual assets,” said Malcolm Wright, chairman of GDF’s advisory council

A similar argument was put forward by Som Seif, founder and CEO of Purpose Investments, the firm responsible for the first approved bitcoin ETF product in North America.

Speaking on CoinDesk TV, Seif noted that investors are hungry for ways to gain crypto exposure. Reluctance by the SEC to approve a bitcoin ETF could drive interest in alternatives such as investing in MicroStrategy, a company so loaded with bitcoin it almost functions like an exposure to the asset.

“If you don’t regulate something [investors] will find a way to access it in any other way … which opens up much greater investor risk,” Seif said.

That said, the past several years has been a boon for the crypto asset substructure. Seif noted the number and quality of custodians, intermediaries and data providers that have come online, all of which serves to foster confidence among regulators.

The plumbing is in place, the investors are there. Someone just needs to turn the spigot.

Quick bites

• Pseudo-privacy coin Verge suffered a massive 560,000-block reorganization Monday. (CoinDesk)
• Diem, formerly Libra, could have a working product this quarter. (CoinDesk)
• Nexus Mutual raised $2.7 million in a token sale. (CoinDesk)
• Cloudflare has an Unstoppable Domains integration. (CoinDesk)
• A look at how (and why) Yearn printed $300 million worth new tokens. (Cointelegraph)

Strong opinions

• Bitcoin’s rise reflects America’s decline. (Financial Times)
• Governments will have a hard time banning bitcoin. (CoinDesk – Crypto Long & Short)
• What to make of the influencer economy in crypto? (CoinDesk – Money Reimagined)
• Bitcoin is a tool for building generational wealth. (CoinDesk Opinion)

Who won Crypto Twitter? Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Bitcoin’s price saw a retracement of its earlier gains on Tuesday, but the market expects that it will soon resume its long-term bullish trend and push fresh new all-time highs.

For a brief moment during early New York trading hours, bitcoin broke above $50,000 for the first time ever. However, at press time bitcoin’s price was trading at $48,249.23, down 0.29% in the past 24 hours, according to CoinDesk’s BPI.

“It’s an impressive milestone for bitcoin [reaching above $50,000] that the crypto community has been waiting for,” Alessandro Andreotti, bitcoin over-the-counter broker, told CoinDesk. “In my opinion we are going to keep reaching fresh new highs soon.”

Related: Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum

The pullback after the record high price at $50,584.85 will not be long-lasting, according to Andreotti.

That is a sentiment echoed by analysts and traders, who note that significant amounts of liquidity flowing into the crypto market as a whole has been the underlying driver of the rally over the past few days.

The market opened last week with the news that Elon Musk’s Tesla purchased $1.5 billion worth of bitcoin as part of the company’s balance sheet strategy. Since then, bitcoin’s price has been able to hold onto those gains, despite a small-scale price retreat like the one that happened on Feb. 14.

Read More: Tesla Invests $1.5B in Bitcoin, Plans to Accept Crypto Payments

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

On the retail side, the derivatives market has been on the rise.

In particular, bitcoin’s March futures on the retail-focused platforms have an annualized premium rate averaging at 44.16% at the moment. That outpaces those on the institution-driven Chicago Mercantile Exchange, which averaged at 24.39%, noted Arcane Research’s newsletter dated Feb. 16. Higher premiums indicate more demand on a particular platform.

“Retail traders want that upside exposure and are pricing the futures that expire in March at a premium of almost 5% to the spot price,” the newsletter said.

Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

“They’re running on people’s phones in their pockets. People are using them for dating and social and finances but they’re not fully aware of the amount of data that’s being scooped up.”

Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Wedbush Securities, a Los Angeles-based privately held investment firm, foresees the corporate world emulating the U.S. electric car maker Tesla’s decision to buy bitcoin, just not this year. 

In a note on Monday, Wedbush analysts called Tesla’s bitcoin investment a “game-changer” for the top cryptocurrency and blockchain technology, adding that it could pave the way for more corporate ownership and adoption, according to Business Insider. 

The firm added that payments companies such as PayPal and Square would benefit if Tesla begins accepting payments for its high-end cars in bitcoin and the crypto boom could be “neutral to slightly positive” for Visa and Mastercard.

Related: Kakao to Record Private Securities on Its Own Blockchain as NFTs

Tesla disclosed its bitcoin stash, then valued at $1.5 billion, last Monday, reviving animal spirits in the cryptocurrency markets and raising hopes for more institutional participation. The Fortune 500 firm also said it might accept bitcoin as means of payment. 

However, according to Wedbush, mass corporate adoption may remain elusive in the short-run due to bitcoin’s high price volatility. “Given the still nascent and volatile nature around bitcoin, less than 5% of public companies will likely invest in bitcoin over the next twelve to eighteen months, but that could move “markedly higher” as more regulation and acceptance of the cryptocurrency takes hold in the future,” Wedbush’s analysts noted. 

Speaking of bitcoin’s recent price rally, the firm believes it’s more than just a “fad” and represents the growth in the digital currency and the blockchain space. 

Also read: ‘Long Tech’ Retakes Most-Crowded Trade Crown from Bitcoin: Bank of America Survey 

Related: Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum

“We believe the trend of transactions, bitcoin investments, and blockchain-driven initiatives could surge over the coming years as this bitcoin mania is not a fad in our opinion, but rather the start of a new age on the digital currency front,” said Wedbush.

Bitcoin rose to new record highs above $50,000 early Tuesday, marking a 400% rally from lows near $10,000 observed in early October.

Related Stories

• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Grayscale Investments has expanded its senior leadership team with the announcement of three new C-suite hires.

• The regulated digital asset manager, now with over $37 billion in assets under management, has appointed Hugh Ross as chief operating officer, Benjamin Melnicki as chief compliance officer and Angela Romano Kuo as chief people officer.
• Ross and Melnicki bring with them experience at firms such as Goldman Sachs, Bank of America and Ripple Labs, while Kuo is a people veteran at companies like DevaCurl, VTS and FanDuel.
• The appointments follow closely after the elevation of Michael Sonneshein, the firm’s long-time managing director, to CEO.
• New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.

See also: Grayscale Files to Register Trust for DeFi Platform Yearn Finance

Related Stories

• Kakao to Record Private Securities on Its Own Blockchain as NFTs
• Japan’s SBI Investing ‘Eight-Figure’ Sum in Swiss Crypto Bank Sygnum
• Most Finance Chiefs Still Balk at Bitcoin on the Balance Sheet: Survey
• Michelle Phan: Bitcoin is an Adult Piggybank

Elon Musk, the world’s richest man, has made a huge splash in the world of Bitcoin after one of his companies, Tesla (TSLA), revealed that it spent $1.5 billion on the premier decentralized digital currency.

Bitcoin printed new lifetime highs near $50,000 this morning, having crowded out excess bullish leverage in the derivatives market with a swift price drop on Monday.

The top cryptocurrency by market value clocked a record high of $49,950.93 at around 08:00 UTC Tuesday and was last seen trading near $49,280, representing a 2.8% gain on the day, according to CoinDesk 20 data.

Prices had fallen Monday by $3,000 to below $45,926 during the early Asian trading hours, triggering nearly $392 million-worth of long liquidations in the derivative market.

Related: Ripple, SEC Say Settlement Unlikely Before Trial Over Alleged Securities Fraud

While the dip was short-lived, a breakout above $50,000 has so far remained elusive. Bitcoin now needs the help of cash/spot buyers to rise above $50,000, according to Patrick Heusser, head of trading at the Swiss-based Crypto Finance AG.

“Everyone in derivatives have done their job, and they look exhausted,” Heusser told CoinDesk, adding that prices could consolidate between $44,000 and $50,000 if spot buyers continue to sit on the fence.

The cryptocurrency’s recent rally from $40,000 has been primarily driven by leverage on derivatives, and spot market volumes on institutional-focused exchanges such as Coinbase Pro have cooled, as discussed on Monday.

Notably, the Coinbase premium indicator, which measures the spread between Coinbase Pro’s BTC/USD pair and Binance’s BTC/USDT pair, continues to report negative values, as noted by Ki-Young Ju, CEO of the blockchain analytics firm CryptoQuant on Tuesday. The negative premium indicates weak institutional inflows.

Related:

See also: Institutions Not Worried About Bitcoin Dropping Below $40K, Options Data Shows

Related Stories

• Pornhub Payment Option Verge Suffers Massive Blockchain Reorganization
• Analyzing Social Sentiment on Crypto

Verge, a small cryptocurrency serving as a payments option on Pornhub, suffered a massive 560,000-block reorganization Monday, according to researchers at Coin Metrics. Verge’s Twitter account seemed to acknowledge the attack late Monday.

• In “likely the deepest reorg that has ever taken place in a ‘top 100’ cryptocurrency,” the past 200 days of Verge transaction history “just vanished,” wrote Coin Metrics network data analyst Lucas Nuzzi.
• Verge’s official Twitter account said the “dev team has released a fix” and everything should be “business as usual” in “13 hours.”
• The cryptocurrency previously known as DogecoinDark is no stranger to network attacks. The network suffered similar but less severe exploits in April 2018 and May 2018.
• After Monday’s reorganization, Verge now stands tied with Ethereum Classic for the number of network exploits. Ethereum Classic suffered three consecutive 51% attacks inside of a month in August 2020.
• Verge markets seemed mostly unaffected by the news, trading mostly in tandem with other cryptocurrencies that dipped early Monday and before recovering.
• The market’s reaction may be due to the fact that no one noticed, since Verge reported barely $50 million in 24-hour trading volume across all markets, according to CoinGecko.

Related Stories

• Analyzing Social Sentiment on Crypto
• Investment Strategists On Bitcoin’s Anticipated Move to $50K
• Market Wrap: Crypto Market Cap Breaks $1.5T as Buyers Show Up for the Dip
• The Mainstream Media Narrative Shifts as Deutsche Bank and Morgan Stanley Come to Bitcoin

• Bitcoin (BTC) trading around $48,600 as of 21:00 UTC (4 p.m. ET), slipping less than 1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $45,926 to $49,332.
• In a brief market correction Monday morning, over $1.6 billion worth of crypto futures contracts were liquidated over the past 24 hours, per Bybt. 
• The total cryptocurrency market cap broke $1.5 trillion for the first time late Monday, according to CoinGecko.

Bitcoin has fully pared losses from Sunday’s dip as the leading cryptocurrency fell from around $48,600 to below $46,000 early Monday morning. As of 21:00 UTC (4 p.m. ET), bitcoin was trading above $48,600 on Coinbase. But the leading cryptocurrency still has yet to trade above the psychologically significant $50,000 mark. 

Much of bitcoin’s choppy price action and its recent dip could be attributed to futures deleveraging. Eager bulls piled into long trades expecting a swift breakout to $50,000 or higher. Funding rates for perpetual bitcoin futures have steadily increased through February, according to market data collected by Skew, with some funding rates reaching their highest levels in the past 12 months. 

Confirming this market condition, bitcoin futures saw over $520 million in liquidated contracts over the past 24 hours, according to data from Bybit. The eager buyback after these liquidations hints at the market’s resilient bullishness after resetting over-eager bullish futures traders. 

Related: Pornhub Payment Option Verge Suffers Massive Blockchain Reorganization

High positive funding rates signal an increase in long positions, whereas negative rates indicate a more bearish sentiment. The market tends to reset when traders, especially in overcrowded derivatives positions, become overly bearish or bullish. 

Even though some traders may be dissatisfied by the choppy price action, other market participants are enjoying themselves. Bitcoin miners, for example, hauled in a record $354 million in revenue last week, passing the previous record of $340 million set in mid December 2017. Network fees contributed over 15% of this revenue.

Ethereum

Ether, the second-largest cryptocurrency by market capitalization, was up Monday trading around $1,820 and climbing less than 1% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Shortly after setting new record highs above $1,850, ether also suffered a sizable drop, falling almost 10% to roughly $1,660 early on Monday. Over $313 million in ether futures were liquidated in the past 24 hours, per Bybit. 

Related: Analyzing Social Sentiment on Crypto

The DeFi sector in aggregate followed suit, per data from Messari. But Ethereum and the various assets in the DeFi ecosystem have since recovered, with DeFi’s aggregate performance up nearly 3% in the past 24 hours, per Messari. 

Other alternative cryptocurrencies have also recovered from the market’s dip. FTX’s altcoin index perpetual futures are up nearly 20% from early Monday morning lows, completely retracing the correction. 

Other markets

Digital assets on the CoinDesk 20 are X Monday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

• Cosmos +23.1%
• Orchid +9.9%
• Bitcoin Cash +7.5%

Notable losers:

• Ethereum Classic -4.8%
• Algorand -4.7%
• XRP -3.7%

Equities:

• Asia’s Nikkei 225 closed the day up over 550 points at 30,083.
• The FTSE 100 in Europe gained over 2% to start the week, reaching 6,754.
• The S&P 500 in the United States was closed in observance of Presidents Day.

Commodities:

• Oil gained less than 1%. Price per barrel of West Texas Intermediate crude: $60.11.
• Gold was in red less than half of a percent at $1,817 as of press time.

Treasuries:

• The 10-year U.S. Treasury bond yield climbed Friday to 12.01, in the green 3.6%.

Related Stories

• Investment Strategists On Bitcoin’s Anticipated Move to $50K
• The Mainstream Media Narrative Shifts as Deutsche Bank and Morgan Stanley Come to Bitcoin

Australia’s blockchain and cryptocurrency companies need more support from the federal government and regulators to boost confidence within the country’s business sector, according to Steve Vallas, CEO of advocacy body Blockchain Australia.

Speaking at the Senate Select Committee on Financial Technology and Regulatory Technology on Thursday, Vallas said Australia has a blockchain “base” from which it can accelerate development and that his organization is now “signaling” that the technology is something people “should be investing in.”

Vallas pointed to Australia’s lack of blockchain innovation in the last few years, saying it hadn’t harmed the country’s ecosystem. However, “I think we need more signals from regulators … that they’re willing to discuss this subject matter with people who are well versed in it,” he said.

Related: Pornhub Payment Option Verge Suffers Massive Blockchain Reorganization

The Senate Committee is currently assessing the potential for blockchain technology in a commercial and government setting following the country’s National Blockchain Roadmap launch in February last year. The roadmap, announced via the Department of Industry, Science, Energy and Resources, sets out expectations of a national strategy aiming to capture blockchain’s value for business-related activity.

Vallas said some financial authorities across the globe, such as the EU, the U.K. and the U.S., are providing more guidance to businesses looking to use or promote blockchain and digital assets, particularly within the banking sector.

While regulators like the U.S. Office of the Comptroller of the Currency are saying to banks they can custody crypto assets and should be banking cryptocurrency companies, “Those signals are largely absent from the Australian market,” he said.

See also: US Federal Regulator Says Banks Can Conduct Payments Using Stablecoins

Related Stories

• Analyzing Social Sentiment on Crypto
• Investment Strategists On Bitcoin’s Anticipated Move to $50K
• Market Wrap: Crypto Market Cap Breaks $1.5T as Buyers Show Up for the Dip

Cryptocurrency exchange EXMO is down at press time, with the company saying it’s been hit by a distributed denial-of-service (DDoS) attack.

• The U.K.-based exchange tweeted around 13:00 UTC Monday that its servers are temporarily unavailable owing to the attack and that it’s “solving this issue.”
• Several hours later, work to get the site back online still seems to be ongoing.
• A DDoS attack occurs when an online service is hit with massive volumes of traffic in order to slow or halt its operations.
• The attack comes less than two months after EXMO lost nearly 6% of its crypto assets in a security breach on Dec. 21, 2020.

See also: Bitcoin.org Briefly Shut Down by Denial of Service Attack; Bitcoin Not Affected

Related Stories

• Institutions Not Worried About Bitcoin Dropping Below $40K, Options Data Shows
• New Emerging Markets Fund Targets Blockchain, DeFi Startups
• Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017
• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors

Despite bitcoin’s rapid $3,000 fall from new record highs seen Sunday, institutions seem confident about the cryptocurrency’s long-term prospects.

The cryptocurrency dropped to $47,790 earlier on Monday, after just failing to pass the psychological hurdle of $50,000 over the weekend. So far, however, are there are few signs of preparations for deeper losses in the options market.

“There is still an absence of any institutional long-term hedging. In fact, funds continue to take advantage of selling June-December expiry put options at strikes below $40,000,” Deribit Insights said in a tweet thread explaining the reasons for the price drop and the resulting changes in options market flows.

Related: UK Crypto Exchange EXMO Offline Amid DDoS Attack

A put option gives the holder the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. Investors buy puts, paying a premium, when anticipating a price drop and sell (write) put options, collecting a premium, when they foresee price consolidation or a rally.

Currently, large investors are still selling long-term puts below $40,000, showing they are not anticipating an extended/sustained price drop below $40,000.

The absence of any implied volatility spike on the drop from $49,000 to $46,000, as well as the bounce to $48,000, suggests “comfort and consolidation” in the mid-$40,000 to $50,000 trading range, Deribit Insights said.

“The strategy of selling the downside puts is two-fold: to get premium (theta) which is higher with higher volatilities, and also because the traders don’t think a crash will happen before that expiry,” said Shaun Fernando, head of risk and product at Deribit, the biggest crypto options exchange by trading volume.

Related: New Emerging Markets Fund Targets Blockchain, DeFi Startups

The six-month put-call skew, which measures the cost of puts relative to calls, remains entrenched in the negative territory, supporting Deribit’s assessment. The three-month metric is also hovering below zero, indicating a bullish bias.

Had institutions bought long-term puts to position for a deeper price slide, the six-month put-call skew would have turned positive. Further, increased put buying in the June to December expiry series would have pushed up long-term implied volatility (IV), a measure of investors’ expectation of price turbulence.

The six-month IV has dropped from 104.6% to 99.6% in the past 24 hours, while the one- and three-month IV lines are following similar trajectories.

Selling options (whether put or call) is a limited profit, unlimited loss strategy generally better left to institutions with a large capital supply. The gain is limited to the extent of the premium received, and loss can be endless as theoretically, an asset can drop to zero or rally to infinity.

See also: 3 Reasons Why Bitcoin’s Price Just Fell by $3K

Related Stories

• Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017
• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors

Asset management firms Alpha Innovations and Arcanum Capital have launched a $10 million venture capital fund focused on driving blockchain innovation in emerging markets.  

The Arcanum Emerging Technologies Fund is to be the first of a series, with an initial close expected in late February, according to a company statement. The fund will provide seed and series A financing to blockchain firms in emerging markets, the companies said in a statement on Monday. 

According to James McDowall, a founding partner at Arcanum, the fund is geared towards finding, supporting as well as incubating blockchain startups that are exploring decentralized finance (DeFi) and building on Web 3.0. The fund also hopes to tackle social issues in emerging markets, McDowall said. 

Related: UK Crypto Exchange EXMO Offline Amid DDoS Attack

“DeFi is hot right now. But there is a lot of financial inclusion to take place in India and other emerging markets, and that’s something we’re passionate about,” McDowall told CoinDesk. 

The fund will initially focus on blockchain projects in India, although not exclusively, McDowall said, adding that Arcanum founding partner Rahul Andra is based in Bangalore, India, where he is working directly with the blockchain communities to find promising projects. 

According to McDowall, India has one of the largest pools of talented developers in the world, and with around half of the country’s population under the age of 25, he expects a substantial spike in innovation and entrepreneurship. 

“At first glance it’s not exciting because it’s only $10 million. But we can do so much with that in India,” McDowall said.

Related: Institutions Not Worried About Bitcoin Dropping Below $40K, Options Data Shows

Despite India’s lack of regulatory clarity when it comes to crypto, and its recent decision to move forward with a blanket ban on mining, trading and crypto investments in the country, the local blockchain space is attracting substantial capital investment. 

In October, bitcoin investor Tim Draper backed a $5 million Series A funding round for Bangalore-based crypto exchange Unocoin. In December, India’s largest crypto exchange CoinDCX raised $13.9 million in Series B funding. 

According to Alpha Innovations Chief Operating Officer Nicole Biernat, what drew her towards a partnership with Arcanum was its global team. Arcanum founding partners are based in New York, Zurich, Bangalore and Beijing.  

“What’s so powerful about that is that each of them have these very deep networks and connections in their respective areas. So there’s a lot of different places to draw talent from,” Biernat said. 

All of the partners in the fund are veteran blockchain investors, McDowall said, adding that he has been investing in the space since 2016.

Bermuda-based Alpha Innovations and U.S.-based Arcanum Capital have partnered with service providers including Bermuda’s Apex Fund Services, Walkers and KPMG for the launch of the fund.

Related Stories

• Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017
• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors

Bitcoin miners set a new record for weekly revenue after bringing in $354.4 million last week.

• Mining revenue growth was helped by the leading cryptocurrency’s performance last week following a string of positive developments, culminating in bitcoin hitting new record highs over the weekend just below $50,000.
• “Despite decreasing block reward, mining revenue on a USD basis has trended upwards,” said Ethan Vera, co-founder of Seattle-based mining company Luxor Technology, in a direct message with CoinDesk. “This is encouraging for the long term prospects of Bitcoin’s security and continued investments over the next few halving.”
• Weekly revenue eclipsed the previous record of $340 million set in mid-December 2017 near the peak of bitcoin’s prior bullish market cycle. CoinDesk revenue estimates based on network fees and block subsidy data from Coin Metrics assume miners sell their bitcoins immediately.
• Over 15% of the week’s revenue was from network fees, continuing a trend of strong growth in fee-based revenue from May 2020, per CoinDesk’s prior reporting.
• “Our miners are incredibly bullish on the future of mining,” Vera told CoinDesk. “January and February 2021 have been record months for most of them, and they are taking all of their profits and reinvesting it back into their business to grow future hashrate.”

Related Stories

• UK Crypto Exchange EXMO Offline Amid DDoS Attack
• Institutions Not Worried About Bitcoin Dropping Below $40K, Options Data Shows
• New Emerging Markets Fund Targets Blockchain, DeFi Startups
• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors

Thailand’s Securities and Exchange Commission (SEC) will conduct a public hearing this month to gauge what qualifications should be imposed on retail investors opening new cryptocurrency trading accounts.

According to a report by the Bangkok Post on Sunday, the regulator is concerned for investor safety amid the recent meteoric rise in cryptocurrency prices and the resulting flood of sign-ups to local exchanges.

The regulator aims to determine if new crypto investors have enough experience and are in a financial position to absorb the risks associated with cryptocurrency trading and volatile price swings.

Related: UK Crypto Exchange EXMO Offline Amid DDoS Attack

“We should set some screening criteria such as age, trading experience and level of revenue or wealth to limit risks,” said the SEC’s secretary-general, Ruenvadee Suwanmongkol, adding that such measures are already in place for high-yield bonds, which are only available to certain investor types.

The SEC reported 124,000 new investor signups within the first week of February bringing the monthly total to 594,000 as of Feb. 8, according to the Bangkok Post’s report.

The hearing comes after the country’s finance minister, Arkhom Termpittayapaisith, asked the SEC to keep tabs on local cryptocurrency exchanges in a bid to protect newcomers.

CoinDesk attempted to contact the SEC to ask for more details on the hearing, but had not received a response by press time.

Related: Institutions Not Worried About Bitcoin Dropping Below $40K, Options Data Shows

See also: Siam Bank Launches $50M Blockchain Fund

Related Stories

• New Emerging Markets Fund Targets Blockchain, DeFi Startups
• Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017

The CEOs of Robinhood, Citadel, Melvin Capital and Reddit will testify at a U.S. House Committee on Financial Services hearing this week relating to issues around the recent frenzied trading of stocks like GameStop.

• The virtual hearing on Feb. 18 is set to investigate how retail trading pushed the stock from trading below $20 at the beginning of January to around $340 at the end of the month, according to a New York Post report Saturday.
• In particular, Reddit’s online trading community r/WallStreetBets helped pump share prices for GameStop and other companies in a bid to punish short sellers.
• Amid the surge, trading app Robinhood limited the ability of traders to buy GameStop and other stocks targeted by WallStreetBets.
• Rep. Maxine Waters (D-Calif.), who will chair the hearing, said previously “I am concerned about whether or not Robinhood restricted the trading because there was collusion between Robinhood and some of the hedge funds that were involved with this.”
• Hedge fund Citadel is appearing because its independent securities arm has a business relationship with Robinhood, while Melvin Capital had to close its GameStop short positions due the the price rise.
• The hearing will be attended by Citadel CEO Ken Griffin, Robinhood CEO Vlad Tenev, Melvin Capital Management CEO Gabriel Plotkin, Reddit co-founder Steve Huffman and Reddit user Keith Gill.

Read More: Investors Pump $250M Into Reddit Following Social Media Site’s Role in GameStop Mania

Related Stories

• New Emerging Markets Fund Targets Blockchain, DeFi Startups
• Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017
• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors
• 3 Reasons Why Bitcoin’s Price Just Fell by $3K

Bitcoin slumped early on Monday, soon after it had looked primed for a convincing move above $50,000. 

The top cryptocurrency fell from nearly $49,000 to $45,926 during the early Asian hours and was last seen changing hands near $47,790 – down 1.8% on the day, according to CoinDesk 20 data. 

The decline surprised many investors, as a notable all-time high milestone had looked on the cards amid optimism generated by the recent wave of institutional adoption. 

Related: New Emerging Markets Fund Targets Blockchain, DeFi Startups

So what happened? Here are three reasons that may explain the sudden price pullback.

1. Funding stress

“Bitcoin and other cryptocurrencies, in general, looked overheated, and the Asian session drop was likely a ‘funding reset’ needed for a sustained move above $50,000,” Matthew Dibb, COO and co-founder of Stack Funds, told CoinDesk 

Indeed, the cost of holding long positions in bitcoin‘s perpetual futures market, also known as the funding rate, rose to a 12-month high of 0.109% on Sunday, indicating excess bullish leverage, or overheating, in the market. 

The average funding rate began climbing at the end of January and surged to multi-month highs in the wake of Tesla’s disclosure of bitcoin investments last Monday. This suggests that the recent rally from below $40,000 was primarily driven by leverage on derivatives. As such, there was always the risk of funding reset.

Related: Bitcoin Miners Posted $354M in Revenue Last Week, Breaking Record From 2017

The price drop has liquidated over $300 million-worth of bitcoin long positions so far today, according to data source Coinalyze – that’s roughly 30% of the total long liquidations of $1.33 billion observed in the crypto market. 

Many alternative cryptocurrencies such as XRP, XLM, LINK, ADA and some decentralized finance-linked tokens suffered double-digit price drops in the Asian session, overshadowing bitcoin’s 6% decline. According to Dibb, the wider sell-off added to bearish pressures around bitcoin. 

According to a tweet from market analyst Josh Rager, the altcoin rally had turned “euphoric” last week, meaning a price drop was overdue. 

2. Institutional demand weakened

The Coinbase premium indicator from analytics firm CryptoQuant turned negative on Sunday in a sign of weak demand from large investors. 

The indicator measures the spread between Coinbase Pro’s BTC/USD pair and Binance’s BTC/USDT pair, which includes the USD-linked stablecoin tether. The indicator is widely followed by traders, as Coinbase Pro is considered synonymous with high net-worth individuals and institutional investors. A positive spread implies strong institutional inflows and vice versa. 

“The premium fell nearly to -$80 during Sunday’s early European hours and remained largely neutral when the price was ranging between $48,000 to $49,000,” CryptoQuant CEO Ki-Young Ju told CoinDesk. “Weak spot inflows signaled scope for correction.”

Bitcoin’s rally from early October lows near $10,000 has been largely fueled by increased demand from high-net-worth individuals and institutions. The cryptocurrency consistently traded at a Coinbase premium of around $100 throughout the four-month bull market, with the few instances of negative premiums paving the way for price pullbacks. 

Market analyst Joseph Young cited negative a Coinbase premium and stagnant Grayscale inflows as price-bearish developments on Sunday while pointing to $48,000 as the level to beat for the bulls. 

The seven-day average of Grayscale inflows peaked in mid-January and has been trending south ever since (barring a rise Friday), according to data source Glassnode. While retail investors trade in the spot market, many institutional investors gain exposure to bitcoin through the regulated Grayscale Bitcoin Trust (GBTC).

New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.

3. Chart-driven factors

The recent rise from $30,000 to $49,000 lacked volume support on prominent exchanges such as Coinbase. 

The 10-day moving average of daily volume has been declining since early February. A low-volume price rise is often short-lived and prone to sudden pullbacks, similar to the one seen early today.

Broader bias remains bullish

Bitcoin’s latest price slide is typical of pullbacks observed during the previous bull markets, and the path of least resistance remains to the higher side. 

“We’re probably entering (I think) a brief and minor correction now, but we’re still in the midst of a violent bull run that will soon be more violent,” Ari Paul, CIO of BlockTower Capital, tweeted. 

According to analysts, more institutions may soon emulate Tesla’s move to diversify cash holdings into bitcoin, leading to a convincing move above $50,000. 

At press time, the perpetual funding rate has normalized to 0.05% and the Coinbase premium has recovered to $50. Bitcoin has regained some poise in the past few hours to trade well above $47,000.

Also read: Bitcoin Sets New All-Time High of $49.7K, Putting $50K Within Striking Distance 

Related Stories

• Thailand’s Securities Regulator Eyes Qualifications for New Crypto Investors
• Reddit, Robinhood, Citadel CEOs to Testify at GameStop Hearing