Bitcoin (BTC) starts a new week still replaying November 2020 after its lowest weekly close in two years.
The largest cryptocurrency, just like the rest of the crypto industry, remains highly susceptible to downside risk as it continues to deal with the fallout from the implosion of exchange FTX.
Contagion is the world on everyone’s lips as November grinds on — just like the Terra LUNA collapse earlier this year, fears are that new victims of FTX’s giant liquidity vortex will continue to surface.
The stakes are decidedly high — the initial shock may be over, but the consequences are only just beginning to surface.
These include issues beyond just financial losses, as lawmakers attempt to grapple with FTX and place renewed emphasis on urgent Bitcoin and crypto regulation.
With that, it is no wonder that price action across cryptoassets is weak at best — and there are plenty of voices arguing that the worst is still to come.
Cointelegraph takes a look at some of the major factors to bear mind this week when it comes to BTC price performance.
FTX contagion turns to GBTC
As clouds swirl over the fate of FTX’s executives and ex-CEO, Sam Bankman-Fried, commentators and crypto investors alike are wondering where contagion will strike next.
Sentiment suggests that everyone is expecting the worst. A case in point comes in the form of Genesis Trading, part of the Digital Currency Group (DCG) conglomerate, which last week halted payouts at its crypto lending arm.
This not only set off a string of rumors over Genesis’ solvency, but also over DCG’s future. Reassurances from executives have failed to stem the narrative, which has also focused on the largest institutional Bitcoin investment vehicle, the Grayscale Bitcoin Trust (GBTC).
Thus, over the weekend, a growing debate over GBTC mushroomed into a full blown panic over financial buoyancy.
As Cointelegraph reported, this was made worse by Grayscale refusing to provide address details to prove its BTC reserves, allegedly for reasons related to security.
Suspicions over a $1 billion owed by DCG to Genesis add to the melting pot of misgivings.
At the same time, some well-known investors have added to their GBTC positions in recent weeks.
“Is the next black swan GBTC already around the corner?” trading resource Stockmoney Lizards thus queried on Twitter.
“GBTC holds ~648k BTC.Grayscale discount off to a record 43% as FTX spreads great uncertainty.Lots of hysteria in the market and everyone is looking for the 10k Bitcoin reason. Keep calm, bear markets end in the winter!”
Further contention is focused on GBTC’s discount to the Bitcoin spot price, which is now almost at 50% for the first time ever.
Arthur Hayes, former CEO of exchange BitMEX, even flagged a blog post from July which ventured that DCG had worked with defunct trading firm Three Arrows Capital (3AC) to “extract value from the GBTC premium.”
Having vouched for Grayscale’s legitimacy last week, Coinbase was the potential target for Timothy Peterson, investment manager at Cane Island Alternative Advisors.
“To all questioning $GBTC Grayscale holdings: Why not short $COIN @coinbase ?” he ventured on Twitter.
“They are the custodian & they would be the ones committing fraud. COIN is 10x the size of GBTC; stock would go to 0 and execs would go to prison. You would be wealthy and go on vacation.”
Mike Belshe, CEO of BitGo, meanwhile placed the blame for GBTC’s situation — and FTX — firmly at the door of United States regulator, the Securities and Exchange Commission (SEC).
“By failing to create an ETF for bitcoin, the SEC: – allowed the grayscale -> GBTC trade to rip retail for 5+yrs – created the GBTC negative premium – forced most crypto trading outside US jurisdiction – let FTX’s fraud hit millions of Americans it shouldn’t have,” he summarized in part of a Twitter discussion.
In related FTX developments, hacked funds from the exchange are on the move, with tens of thousands of Ether (ETH) converted to BTC this weekend.
Downside risk in numbers
Bitcoin is understandably between a rock and a hard place under the current circumstances.
BTC/USD has failed to catch a break since FTX blew up, testing levels not seen in two years and fielding growing calls for further capitulation.
The question for traders and analysts is how far that capitulation could go.
As Cointelegraph reported, targets include $13,500, $12,000 and even as low as $10,000 or less this winter.
The situation was not helped by the latest weekly close, Bitcoin’s weakest since November 2020 at around $16,250, with fresh losses appearing since, data from Cointelegraph Markets Pro and TradingView shows.
“Volume decreasing. Bollinger Bands squeezing on many time frames. Something has to give,” analyst Matthew Hyland warned before the close.
A look at volatility on the daily chart showed Bollinger Bands…
cointelegraph.com