- Bitcoin has fallen over 15% to around $58,000 since its recent all-time high of almost $69,000.
- This came as the SEC rejected a spot bitcoin ETF and the infrastructure bill was signed into law.
- Insider asked 5 crypto experts what’s behind the sell-off and why metaverse tokens held up better.
Bitcoin’s price had fallen more than 15% to around $58,000 as of Friday after surging to a new all-time high of $68,998 on November 10.
From a technical analysis perspective, the largest cryptocurrency has broken its near-term psychological support of $60,000, with the next important support level sitting at around $54,000, according to commentary from the trading desk at Genesis Trading.
The overall crypto market has shrunk by $500 billion as both traditional finance and crypto-native accounts were seen “cutting sizeable amounts of risk.”
“We saw broad-based selling across our entire franchise yesterday, with a 5:1 tilt to selling in overall flows,” the trading desk said in a Friday morning research update. “The general trend was to move up the
market cap
table with alts being sold for ETH and ETH sold for BTC.”
Bitcoin’s decline came as the SEC rejected VanEck’s bitcoin spot ETF application and President Biden signed the infrastructure bill into law, which included a provision that significantly raised the tax reporting requirements for crypto firms. Meanwhile, the derivatives market has also been experiencing structural pressure since the launch of the first futures-based bitcoin ETF, according to Jodie Gunzberg, managing director of CoinDesk Indices.
“The underlying futures contract volume more than quadrupled in two days and open interest nearly doubled in those two days and now is triple its level before the ETF launch,” she said in an email interview. “The cost of rolling futures, which should theoretically only be expensive when the price is expected to increase, continued growing through the month, so [it] is now one-third more costly, despite the drop in bitcoin price.”
What’s behind bitcoin’s sell-off
Joseph Edwards, the head of research at crypto
liquidity
provider Enigma Securities, feels that the sell-off has been derivatives-driven, above all else.
“There has been a tendency over 2021 for traders to too aggressively buy into all-time high breaks, and they’ve been punished for it again and again over the last couple of months,” he said in an email interview.
Sui Chung, CEO at crypto benchmark administrator CF Benchmarks, thinks that the recent pullback, characterized by daily falls of about 5%, has been “fairly gentle” and derives more from physical spot activity.
“Additionally, very few market participants thought the VanEck spot ETF would be approved given Commissioner Gensler’s repeated negative comments on the concept, so it was already priced in,” Chung said in an email interview. “When it comes to the reason for that selling, our view is that it is likely profit-taking.”
Noelle Acheson, head of market insights at Genesis Trading, adds that traders might also be worried about a potential inflow of sellers’ bitcoin into the market.
She said one source of sell pressure comes from the finalized plan to compensate the creditors of the defunct crypto exchange Mt. Gox. Creditors could sell as much as $9 billion in bitcoin as soon as they receive the payments, but the timing is still unclear. In addition, many creditors are hedge funds and might not sell, she added.
Another concern is an ongoing civil lawsuit in Miami, which centers around the identity of the obscure bitcoin creator Satoshi Nakamoto and the rights to the 1.1 million bitcoin that Nakamoto mined in the early days.
“Some traders have cited concern that a win for the plaintiff might lead to the release of a significant portion of the locked coins,” she explained in a Thursday evening research note. “This is even more unlikely than the feared Mt. Gox scenario, as the defendant has repeatedly failed to produce evidence that he has access to the BTC in question, even should he lose.”
Bitcoin miners, who recently became net sellers for the first time since early October, could also be weighing on the market. However, over the past year, none of the previous miner accumulation “flips” triggered sell-offs, she added.
Metaverse and gaming tokens holding up better
Amid bitcoin’s sell-off, many crypto watchers noticed that metaverse and gaming tokens have not only held up better but continued their advances.
For example, decentraland (MANA), the sandbox (SAND), and enjin coin (ENJ) were up about 29%, 65%, and 17%, respectively, in the past seven days while bitcoin retreated over 9% in the meantime.
“I think people like to play games no matter what, and that behavior is no different than what we see often in equity markets,” Gunzberg said. “Also, the pullback in ether, or any coins required to play, may have increased demand to play more by enabling people to get started for a cheaper price.”
The metaverse rally, in spite of blue-chip cryptocurrencies’ retreat, could have also been driven by the combination of big-name corporation endorsement and increasing venture capital funding in the space.
“There have been a lot of metaverse-dedicated funds that are just purely raising capital in order to grow the ecosystem within these virtual worlds and play-to-earn economies,” Armando Aguilar, vice president of digital-asset strategy at Fundstrat, said in an interview. “We remain very bullish on the metaverse.”
His favorite metaverse and gaming tokens are star atlas (ATLAS), the sandbox (SAND), gala games (GALA), and yield guild games (YGG).
Still, the decoupling between metaverse tokens and major cryptocurrencies could break over the long term.
“We would be surprised if this turned into a trend,” Enigma Securities’ Edwards said. “The more likely scenario is that metaverse plays will trend up over the next few months agnostic of short-term plays, with only a total trend collapse in crypto more broadly likely to eliminate that.”