First Mover Americas: Institutions Look To Be Selling BTC in Falling Market

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Market Moves

It’s a new week but the same old story in financial markets. The U.S. dollar is again trading higher as macro headwinds weigh over stocks, bonds and cryptocurrencies.

Bitcoin, the top cryptocurrency by market value, traded at a 3.5-month low of $33,080 at press time, representing a 3% drop on the day, according to CoinDesk data.

“Investors are clearly concerned about the aggressive monetary policy from the Federal Reserve, as they will also begin Quantitative Tightening (removal of liquidity from the market) in June,” Marcus Sotiriou, analyst at the U.K. based digital asset broker GlobalBlock, said in an email.

Institutional Selling

Popular indicator suggest institutions are selling into a falling market.

The “Coinbase premium index,” an indicator showing the spread between Coinbase’s BTC/U.S. dollar (USD) pair and Binance’s BTC/USDT pair involving the tether stablecoin, recently turned negative and fell to a 12-month low, according to data tracked by South Korea-based Cryptoquant.

“This [negative Coinbase premium] is telling as a greater percentage of institutions use Coinbase compared to retail, whereas the opposite is the case for Binance. Therefore, the price mismatch mentioned suggests institutions are not currently as interested as retail,” Sotiriou said. “This will be good to keep an eye on going forward and if/when this reverses it could coincide with some relief in the market or a reversal.”

CryptoQuant said in a quicktake blog, “Usually, there is a Coinbase premium. This means that the bitcoin price on Coinbase is higher than on Binance. This was/is very important, because American institutions and HNW (High Net Worth) were trading mostly on Coinbase. However… in the latest few days it’s negative. This indicates heavy selling on Coinbase Pro!”

Bitcoin’s Coinbase premium index (CryptoQuant)

Terra jitters

Programmable blockchain Terra’s UST, the world’s biggest decentralized stablecoin, lost its 1:1 dollar peg over the weekend after multi-million dollar UST sales on Curve and Binance and a series of significant withdrawals from Anchor Protocol, a lending market offering high yields to UST depositors.

The de-pegging perhaps added to the downward pressure on bitcoin and the wider crypto market. “People become afraid that the Luna Foundation Guard [LFG] would have to sell its BTC to support the UST peg, so BTC sells off,” Ilan Solot, a partner at the Tagus Capital Multi-Strategy Fund, said in an email.

“Remember that Terra foundation is the second-largest corporate holder of BTC, between MicroStrategy and Tesla,” Solot added.

The stablecoin was 0.5% off its peg at the time of writing. Terra’s founder Do Kown tweeted early Monday that the LFG agreed to deploy $1.5 billion in capital to defend the peg while assuring the market that the foundation was not trying to abandon its bitcoin position.

Some ‘hopium’

Amid the gloom and doom, two charts could offer some “hopium” – a crypto slang for hope – to the battered bitcoin bulls.

The first is bitcoin’s implied volatility (IV) – options traders’ expectations for price turbulence over a specific period. The one-week implied volatility has risen above the six-week gauge, a sign of peak fear.

A similar IV structure has marked temporary/interim price bottoms in the past.

Bitcoin’s one-week and six-month IV (Skew, CoinDesk)

Secondly, the dollar index’s (DXY) technical chart shows the 50-week moving average is on track to move above the 200-week MA, confirming the so-called bullish crossover (Editor’s note: The newsletter mistakenly said “monthly” moving averages).

While the golden cross is a bullish indicator, as per technical analysis theory, it is a lagging indicator in reality and often traps traders on the wrong side of the market. In other words, the DXY could be closing on an interim top. The dollar weakness is considered positive for risk assets, including cryptocurrencies.

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Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Stephen Alpher.