Morning Crypto Briefing: Bitcoin Price Consolidates Near $21,000 Amid Further Signs of DeFi Stress

Key Points 

  • Cryptocurrencies have stabilized on Friday, after tumbling in tandem with stocks a day earlier.  
  • Bitcoin is trading near $21,000 and eyeing a move below $20,000 as traders digest this week’s hawkish Fed.  
  • Signs of stress in DeFi continue, with Finblox and Babel the latest lending/borrowing platforms to halt/limit withdrawals.  

Bitcoin Price Consolidates Near $21,000 As Cryptos Track Stocks 

Cryptocurrency markets continue to track the price action in US equities closely as the weekend approaches. After Thursday’s tumble to fresh annual lows as investors digested Wednesday’s hawkish Fed meeting, S&P 500 index futures are trading with gains of slightly under 1.0% in pre-US open trade on Friday. That is helping to give some modest intra-day support to cryptocurrency prices, which also tumbled on Thursday, with total crypto market capitalization up about 3.0% on the day near $890 billion, having probed weekly lows around $850 billion on Thursday.  

After the big moves seen last weekend following last Friday’s “game-changing” US inflation data (which pushed the Fed into hiking 75 bps this week rather than 50 and being even more hawkish), cryptocurrency markets are likely to enter a period of comparative consolidation. Fed Chair Jerome Powell will be speaking from 1345BST on Friday but is unlikely to add anything to the lengthy remarks he gave in wake of the Fed meeting on Wednesday.  

Traders should prepare for rangebound trading conditions, with total crypto market cap likely to remain within the $840-960ish billion ranges established in recent days. The Fed is set to be in focus once again next week as various policymakers come out of the woodworks to give their views in wake of the latest meeting. Meanwhile, traders will get a timely update on the health of the US economy so far this month with the release of the preliminary version of IHS Markit’s Purchasing Manager Index survey data on Thursday.  

Looking at some of the major coins, Bitcoin continues to stabilize in the $21,000 level, leaving it well within recent $20,000-$23,000 ranges. Investors continue to fret about the potential for a break under the key $20,000 level, which could open the door to a cascade of further selling/capitulation that could send BTC/USD to its 2019 highs under $14,000.  

Ethereum, meanwhile, is consolidating in the $1,100 area, with bears also eyeing a potential drop under $1,000 that could open the door to a drop towards support in the $800s. Binance’s BNB continues to hold above the $200 level and, like other major coins, is on course for steep weekly losses. Ripple’s XRP continues to range within this week’s $0.30-$0.34 ranges as eyes remain on the lawsuit with the SEC.

Cardano’s ADA, meanwhile, is trading close to $0.50, with the 21-Day Moving Average acting now as resistance. Solana’s SOL has recovered from earlier weekly lows in the $26 per token area to around $31.50, but resistance around $35.50 and 21DMA near $38 is notable.  

DeFi Trouble: Finblox & Babel Limit Withdrawals, 3AC Reportedly Misses Margin Calls 

A staked ether (stETH) liquidity pool on the Decentralised Exchange (DEX) Curve has nearly been emptied as struggling crypto hedge funds including Alameda and Three Arrows Capital dump their holdings of the ETH derivative, various crypto media reported on Friday. One market commentator said this might force future stETH sellers into entering less transparent over-the-counter (OTC) trades where the stETH discount to ETH might be even higher. This discount reached record highs above 8.0% as of Monday this week, a sign of the stress in the Decentralised Finance (DeFi) space.  

Meanwhile, news broke on Friday that the issuer of USD-pegged stablecoin DAI MakerDAO has cut off staking/lending DeFi platform Aave’s ability to generate DAI for its platform without collateral. Analysts said MakerDAO took this decision in order to reduce exposure to the wider DeFi space, amid the risk that beleaguered lending/borrowing platform Celsius Network implodes and causes further contagion across the space.  

Crypto staking and yield generating platform Finblox, a rival in many ways to Celsius Network, announced on Friday that it would be limiting investor withdrawals to $1,500 per month. The platform cited uncertainty supporting the now rumored to be insolvent crypto hedge fund Three Arrows Capital, which had invested $3.6 million in Finblox back in December.  

Meanwhile, news also broke on Friday that Hong Kong-based crypto lending platform Babel Finance had suspended withdrawals given “unusual liquidity pressures”. The withdrawal suspension comes just a month after Babel raised $80 million in a funding round that valued the company at $2.0 billion.  

Back to Three Arrows Capital, reports have been doing the rounds on Friday that the hedge fund has failed to meet margin calls this week, raising the insolvency risk. A report in the Financial Times said that crypto lender BlockFi liquidated some of the hedgefund’s Bitcoin positions this week.  

Crypto Adoption: Metaverse Could Reach $5T by 2030, Digital Payments On Twitter “Make Sense” Says Musk 

According to a new report published by multi-national consulting firm McKinsey & Co on Thursday, spending within the metaverse could hit $5 trillion by 2030. The 77-page report, which drew its findings from two global surveys, found that e-commerce and advertising will dominate payments in the metaverse.  

Elsewhere, Tesla and SpaceX CEO and billionaire Elon Musk, who is currently attempting to buy Twitter, said in a meeting with Twitter employees earlier in the week that it “makes sense” to integrate digital payments into the social media platform so as to make it “easy to send money back and forth”. Dogecoin HOLDers will be hoping that DOGE can play some sort of role in this. Tesla and SpaceX already accept the dog-inspired memecoin that Musk is a big fan of as payment methods for merchandise. Speaking of Dogecoin and Musk, the Tesla CEO has been hit with a widely derided lawsuit, where he is being sued for $258 billion for essentially misleading investors into investing in DOGE.  

Back to crypto adoption; Latin American crypto exchange Bitso announced on Thursday that it had handled more than $1 billion in remittance payments from the US to Mexico so far in 2022, more than fourfold the amount handled over the same period in 2021. The company said it hopes to handle $2 billion in global remittances to Mexico in the full year of 2022. 4% of the remittances sent to Mexico in Q1 2022 went through Bitso, the company added, before stating that it hopes for this percentage to reach 10% in 2023.  

Regulatory Landscape: SEC’s Crypto Mom Peirce Criticises Agency’s “Refusal To Engage”, US States Investigate Celsius 

US Securities and Exchange (SEC) Commissioner Hester Peirce, who is referred to as many within the crypt industry as “crypto mom” given her pro-crypto stance, criticized the SEC’s approach to crypto in a speech given earlier in the week. Peirce accused the SEC of refusing to engage with the industry, citing the agency’s failure to approve a spot Bitcoin ETF as evidence it is determined to hold crypto to a higher standard than other products that it regulates.  

Elsewhere, US Treasury Secretary Janet Yellen reportedly met with numerous Wall Street bank CEOs on Thursday to discuss the economy, while she also allegedly raised the issue of “responsible innovation in digital assets”, said a US Treasury Department official. The official added that the Treasury Department is closely watching cryptocurrency markets and recent turmoil underlines the need to establish regulations in the industry.  

Elsewhere, a number of US states have reportedly opened investigations into the recent decision of the Celsius Network to halt customer withdrawals. Director of enforcement at the Texas State Securities Board Joe Rotunda said in an interview with Reuters that “I am very concerned that clients – including many retail investors – may need to immediately access their assets yet are unable to withdraw from their accounts”. “The inability to access their investment may result in significant financial consequences,” he continued.  

Over in Europe, the EU is being urged by a lobbying group to consider whether introducing a digital euro is actually a good idea, rather than implicitly assuming that this is the case. The Institute of International Finance (IIF) urged the EU to consider its assumptions in a response to a European Commission consultation on the matter that closed on Thursday.  

As USD-pegged stablecoins gain global traction, their proponents have played down the need for a Fed-issued digital USD in the US. The issuer of the second-largest US dollar-pegged stablecoin Circle Internet Financial, whose USDC has a market cap of just shy of $55 billion, has in the past called the idea of a Fed-issued dollar “preposterous”. Circle Internet Financial announced on Thursday that they would be launching a full-backed euro equivalent of USDC, which would be called EUROC.  

EUROC will join a few other pre-existing euro-backed stablecoins, including Tether’s EURt and Stasis’ EURS. If these stablecoins can gain traction in the coming years, they may preclude the need for an ECB-issued euro.