Market Wrap: Cryptocurrencies Rally as Short Sellers Exit Positions

Cryptocurrencies rallied on Friday as bitcoin broke above $47,000 for the first time in two weeks. BTC is up about 10% over the past 24 hours, compared with an 8% rise in ether. Global equities are also stabilizing after a volatile week.

“The move higher [in bitcoin] resulted in over 35 million short futures positions being liquidated across major exchanges,” FundStrat wrote in a newsletter on Friday.

“However, technically speaking, BTC is still trading in the range and has to decisively break the $50K resistance if we are to see higher prices,” Ulrik K. Lykke, founder of digital asset hedge fund ARK36, wrote in an email to CoinDesk. “It is not yet certain whether today’s price really will prove indicative of a greater uptrend.”

Latest Prices

Bitcoin (BTC), $47,902, +9.5%
Ether (ETH), $3,299, +9.4%
S&P 500: +1.2%
Gold: $1,758, +0.0%
10-year Treasury yield closed at 1.467%

Crypto momentum improves

Some analysts characterize the recent upside move in cryptocurrencies as an oversold bounce. Technically, that occurs when prices become stretched to the downside, which encourages short sellers to exit their positions.

The chart below shows MRB Partners’ cyclical momentum index, which is an equally weighted aggregate measure of the speed of price changes across a select group of cryptocurrencies. The index shows cryptocurrencies became the most oversold since early last year.

Still, several risks remain that could limit further upside.

“The challenge for this speculative space is there remain too many macro headwinds to be resolved,” Santiago Espinosa, a strategist at MRB Partners, said in an interview with CoinDesk.

Espinosa said the global regulatory crackdown is still evolving. Outside of China, U.S. and European authorities may enact stricter measures that could handicap crypto prices by making it harder for users to exchange crypto for fiat currencies, according to Espinosa.

Ether holds support

Ether, the world’s second-largest cryptocurrency by market capitalization, returned to above $3,000, and is up about 9% over the past week. Similar to bitcoin’s rise, ether’s uptrend is stabilizing as buyers gained momentum over the past few days. The next level of resistance for ETH is seen at around the $3,500-$4,000 range, which could limit upside over the short term.

ETH lost some ground relative to BTC over the past month during the broader crypto sell-off. However, the ETH/BTC ratio is holding support above 0.66, which could stabilize the relative pullback.

DeFi option strategies

The crypto “cash-and-carry” trade – where traders simultaneously enter into a long position on bitcoin or ether in the spot market and then a short position in the futures market, a way of betting on the eventual convergence of the two prices – has lost its shine, CoinDesk’s Omkar Godbole reported.

Reliable for 30% annualized gains earlier this year, the opportunity has since shrunk to single digits, as the frenzied bullishness witnessed in cryptocurrency markets earlier this year faded and as major exchanges reined in leverage.

But investors can still make double-digit returns via weekly ether or bitcoin “covered call” strategies offered by decentralized finance (DeFi) asset management platforms, including Ribbon Finance and StakeDAO. To do that, investors have to deposit coins in “strategy vaults” designed to automate the trade.

Altcoin roundup

NFT gaming giant Axie Infinity’s revenue drops 40% in September: Revenue in September for blockchain-enabled, play-to-earn game Axie Infinity slid by 40% from August, the first month-over-month decline since January, Godbole reported. Axie made 64,933.71 ether (ETH), worth $220.32 million, in September, down from a record $342 million in August, data center Axie World shows. While September’s figure represents a nearly 3,000-fold year-over-year growth, it’s only about 10% of the pace of the month before. The AXS token was trading near $78 early Friday morning, up over 14,000% on a year-to-date basis, according to TradingView data. Prices reached a high of $95 in early September before retreating with the broader crypto market following China’s blanket ban on virtual currency businesses.
Compound’s founder urges recipients of faulty $90 million token reward to return funds: The DeFi lending protocol paid out millions of dollars in COMP tokens because of a coding bug, prompting founder Robert Leshner to solicit a return of funds via Twitter. “If you received a large, incorrect amount of COMP from the Compound protocol error: Please return it,” Leshner tweeted Thursday evening. “Keep 10% as a white-hat. Otherwise, it’s being reported as income to the IRS (Internal Revenue Service), and most of you are doxed.” After his tweet was met with backlash for its threatening overtones, Leshner responded: “I’m trying to do anything I can to help the community get some of its COMP back, and this was a bone-headed tweet / approach. That’s on me.”
Fitch Ratings publishes stablecoin report highlighting USDC portfolio allocation shift: The ratings agency published its Stablecoin Dashboard 1H21 report, aggregating information on the security portfolios of the largest stablecoins. According to Fitch, stablecoin portfolio allocations shifted during the past several months. “USDCoin held 10% CP and 15% in certificates of deposits (CDs) as of end-June 2021,” the report said. “However, USDCoin’s portfolio significantly de-risked between June and August 2021, with cash and cash equivalents approximately doubling to 92% of portfolio assets.” Fitch also said stablecoins would become “increasingly relevant constituencies in the short-term credit markets.”