Welcome back to Distributed Ledger. This is Frances Yue, reporter at MarketWatch.
The past week has been relatively quite for crypto, as bitcoin continues to trade sideways in the range of $28,500 and $30,000, while U.S. stocks refreshed their yearly highs and later tumbled.
Why does bitcoin’s price, which used to be known for its high volatility, seem to be stuck at around $30,000? I talked to a few industry participants to find out possible reasons.
Find me on Twitter at @FrancesYue_ to share any thoughts on crypto or this newsletter.
‘Unprecedented’ low volatility
Luuk Strijers, chief commercial officer at crypto derivatives exchange Deribit, said the exchange’s volatility indexes for bitcoin and ether are trading at “unprecedentedly low levels”.
Such a low volatility could be due to a lack of conviction by investors, but could also result from a lack of leverage in the system, said Adam Guren, chief investment officer at Hunting Hill Global Capital.
In 2020 and 2021, “leverage was easy in the space and it was maybe overdone,” Guren said. The high amounts of leverage contributed to high volatility and price increase of bitcoin, according to Guren.
However, as several major crypto companies, such as FTX, Alameda Research, BlockFi, Celsius, Voyager and Genesis collapsed in 2022 and early 2023, many highly leveraged players were washed out of the industry.
“We’re now at the other side of the pendulum where there’s really difficult to get any kind of loans or leverage in the space,” Guren said. “If you want to do it, it’s expensive. The interest rates are really high. The collateral terms are super onerous.”
Still, Guren said he expects a return of leverage in the crypto space, when the Federal Reserve starts to cut interest rates again. He also expects some companies to come up with new ways to provide more efficient leverage for the industry.
Read: This economist says he can’t rule out a Fed interest-rate cut by year-end. Here’s why.
Strijers echoed the point. Investors should expect a considerable upswing in volatility in the coming months, potentially driven by any progress in BlackRock
BLK,
spot bitcoin ETF application and the upcoming bitcoin halving event, which is expected to happen in April or May 2024.
Bitcoin halving refers to a process where the block reward given to the crypto miners is cut in half after every 210,000 blocks mined, or about every four years. The crypto has historically seen price appreciation months before and after halvings.
The volatility term structure for bitcoin is quite steep, while there is a continuing call skew, where bitcoin calls are trading at higher volatility than puts, Strijers said.
Crypto founder and a black diamond
The U.S. Securities and Exchange Commission on Monday charged Richard Heart, founder of the crypto projects Hex and PulseChain, with unregistered sale of more than $1 billion in crypto asset securities and the theft of $12 million of those funds to purchase a series of luxury goods.
The complaint says that between August 2021 and September 2022, Heart “misappropriated at least $12.1 million” of PulseChain investor assets “to fund his purchases of luxury goods, including cars and watches.”
Heart allegedly spent $534,916 on a McLaren sports car, $314,125 on a “white Ferrari Roma,” and more than $1 million in total on three Rolex watches.
Heart also allegedly spent $4.28 million on a 555-carat black diamond called “The Enigma,” which is “purportedly the largest black diamond in the world,” and did so with misappropriated PulseChain investor assets.
MarketWatch’s Chris Matthews wrote more about it here.
Crypto in a snap
Bitcoin
BTCUSD,
lost 0.6% in the past seven days and was trading at around $29,166 on Thursday, according to CoinDesk data. Ether
ETHUSD,
dropped 1.9% during the same period to around $1,835.
Must-reads
- SEC delisting demands would mean ‘end of crypto in the U.S.,’ Coinbase CEO says (MarketWatch)
- Ripple Ruling on Crypto Rejected by Federal Judge in Terra Case (Bloomberg)
Read the full article here
