Bitcoin is searching for a direction.
After a wild couple months in crypto markets that saw a ferocious sell-off as the coronavirus spread, followed by a 30 percent price rebound as governments and central banks announced trillions of dollars of emergency financing, the oldest and largest cryptocurrency has settled into a range between $6,700 and $7,400.
Bitcoin price chartSource: TradingView
For Bitcoin holders, it’s a buzzkill.
You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in Bitcoin and more. We follow the money so you don’t have to. You can subscribe here.
Earlier this year, before the extent of coronavirus-related economic damage become clear, bulls had pegged their hopes on May’s halving, a once-every-four-years reduction in the pace of new supplies of the cryptocurrency. The reduced supply and continuing demand from investors was supposed to drive up the price. The German bank BayernLB predicted in 2019 that the halving could drive Bitcoin to $90,000 or higher.
Mati Greenspan, founder of research firm Quantum Economics, wrote Monday in a note to clients that “in the long term, fewer new coins will likely translate into a higher price per coin.”
“I’m not convinced that the halving event will have any immediate effect on the price,” Greenspan wrote. “It might, but then again, it might not.”
Nor is Bitcoin getting much follow-through from the recent rally, which was fueled by investor bets that the cryptocurrency can serve as a hedge against inflation and rampant monetary stimulus. The money hydrant is certainly open: The Federal Reserve’s balance sheet pushed past $6 trillion last week for the first time in its 107-year history.
Kevin Kelly, co-founder of the cryptocurrency-focused research firm Delphi Digital, wrote in a report Monday that the Fed’s recent money injections might just be a start, given the broad-based contraction in economic activity as coronavirus-related lockdowns drag on.
“Put simply, the U.S. economy cannot endure months on end of little to no revenue without government support,” Kelly wrote.
The Wall Street firm Goldman Sachs wrote that stocks are unlikely to make fresh lows due to the “do whatever it takes” approach of policy makers.
Bitcoin is a likely beneficiary, too, according to cryptocurrency investment firm Arca.
“Unless global equity and debt markets crater, Bitcoin seems to have a higher floor now,” Arca analysts wrote Monday in an emailed note. “It is very hard to short risk assets into a wall of cash.”
CoinDesk’s Daniel Cawrey reports that Bitcoin markets have gone into “backwardation” – where futures contracts trade at a discount to the spot price. According to Skew, a cryptocurrency-derivatives data provider, the June contract is trading around $6,750, below the spot-market price of $6,875 as of late Monday.
The Bitcoin market has shifted from contango to backwardation.Source: Skew Markets
The discount could signal that traders are betting on price declines over the next two months, in a shift from last week, when futures were trading at a premium.
“Futures and our own activity indicate that speculators expect to see lower prices in the short term,” said Maxine Boonen, CEO of over-the-counter trading firm B2C2. “One particular hedge fund sold us $20 million of Bitcoin today and they have usually been right.”
Denis Vinokourov, head of research at crypto investment brokerage Bequant, said that if Bitcoin breaks below $6,500, futures traders might face a wave of contract liquidations that could send prices as low as $6,100.
“This cautious tone is supported by a shift in the futures curve,” he told CoinDesk.
According to Arca, the negative sentiment might even be a bullish indicator: if traders are already pessimistic, it’s possible that the bad news is already priced in.
Arca noted the amount of tether tokens – a dollar-linked stablecoin that has become the de facto form of cash in digital-asset markets – has climbed to a record level around $1.9 billion in exchange wallets.
Tether tokens in exchange wallets.Source: ViewBase
That could signal more traders are getting in position to buy.
“Prices can certainly go down, but it would not be surprising if they keep melting up,” Arca wrote.
Not exactly a clear direction.
Tweet of the day
Trend: Bitcoin continues to mimic action in U.S. stock futures. The top cryptocurrency by market value rose from $6,700 to $6,900 early Tuesday, tracking an uptick in futures tied to the S&P 500.
The futures had dropped on Monday, pushing Bitcoin down to $6,600, but turned higher…