First Mover: Cryptocurrency Euphoria Hits Breaking Point as Miners Lose Nerve

The recent euphoria in cryptocurrencies morphed into a severe sell-off, as bitcoin (BTC) prices dove 12% on Monday, which would be the most for a single calendar day since March.

Prices for the largest cryptocurrency had soared last week to an all-time high of $41,962, and that level was apparently sufficient to prompt some cryptocurrency miners to take profits. Declines were broad-based across digital-asset markets, with ether (ETH), XRP (XRP), litecoin (LTC) and cardano (ADA) suffering declines in the double-digit percentages. 

"Time to take some money off the table," Scott Minerd, chief investment officer of the Wall Street firm Guggenheim, tweeted early Monday. In December, Minerd predicted bitcoin prices should be worth $400,000. "Bitcoin's parabolic rise is unsustainable in the near term."

Yves Renno, head of trading at Wirex, told First Mover in emailed comments that he "would expect a period of very high volatility."

The retreat in cryptocurrencies came as investors in traditional markets also turned more cautious, amid speculation over how the final days of U.S. President Donald Trump's tumultuous four-year term might play out. Asian and European shares slid and U.S. stock futures pointed to a lower open. The U.S. dollar rose against major currencies and gold strengthened 0.1% to $1,850 an ounce. 

Read More: Bitcoin’s Big Drop Again Coincides With Dollar Bounce in Forex Markets

The long arm of U.S. regulation and law enforcement might have limited reach when it comes to global cryptocurrency markets. 

That could be one takeaway from the recent trading action in the digital token XRP, which until recently was the third-biggest virtual asset after bitcoin and Ethereum's ether.

Prices for XRP plunged 67% in December after the U.S. Securities and Exchange Commission accused the San Francisco-based payment-technology company Ripple Labs of violating federal laws when selling $1.3 billion of the tokens over a seven-year period.  

Yet, some traders apparently believe the XRP tokens now represent an attractive value, reports CoinDesk's Muyao Shen. On Sunday, they changed hands at about 28 cents, up some 30% year to date. 

Simons Chen, a crypto trader based in Hong Kong, told Shen he bought XRP as prices bottomed out in December, seeing a great opportunity to “buy the dip,” in Wall Street parlance.

The SEC's suit has prompted cryptocurrency exchanges including Coinbase, Bitstamp, OKCoin and Bittrex to delist or suspend trading in XRP. 

But far from entering a death spiral, the XRP market has shown surprising resilience, especially when three of the world's biggest cryptocurrency exchanges – Binance, Huobi and OKEx, all with roots in China – have continued to maintain pairings with the digital asset, Shen reported. There's been significant traffic in trades between XRP and the Korean won, as well as with tether (USDT), a dollar-linked stablecoin that's popular with Chinese traders.   

“Unlike Coinbase or other ‘regulated’ exchanges, Korean and [other] Asian exchanges do not need to care that much of what the SEC does, and investors in Asia are less sensitive about the news,” said Sinhae Lee, partner at Shanghai-based blockchain consulting firm Block72.

The total market capitalization of XRP tokens currently stands at about $28 billion. That's a little shy of the automaker Ford Motor Co.'s $35 billion stock market value and a little more than the U.S. bank and money manager State Street Corp.'s $27 billion.   

"No one really knows what's going to happen to it," Denis Vinokourov, head of research for the crypto prime broker Bequant, said last week in interview. "It's still holding onto a decent market cap for a company that's supposed to be on its knees." 

Read More: Asia’s Retail FOMO Could Be Behind XRP’s Rally Despite SEC’s Lawsuit

Bitcoin fell sharply early on Monday, after failing to establish a foothold above $40,000 over the weekend.

Over the past 24 hours, the cryptocurrency declined by more than $8,000 to $32,400, a drop of more than 20% from levels above $40,800 late Sunday.

“Hefty spot selling against an over-levered market caused the price drop,” trader and analyst Alex Kruger told CoinDesk, adding that it is unclear whether it was miner selling or macro traders liquidating positions. 

Data provided by South Korea-based analytics firm CryptoQuant suggests miner selling did contribute to the price drop.

The 30-day average of Miners' Position Index – a gauge of how rapidly bitcoin miners are moving to liquidate inventories on cryptocurrency exchanges – rose to 2.20 on Sunday, the highest level since July 2019. A reading above 2.00 indicates miners are selling.

The index "looks enough to make a local top," CryptoQuant’s CEO Ki Young Ju tweeted Sunday. "They’re selling bitcoin.”

- Omkar Godbole

Read More: Bitcoin Plummets as Miners Sell Inventory, Spot Markets Panic

EOS (EOS): Serial blockchain entrepreneur Dan Larimer leaves Block.one, the company that raised $4B in 2018 ICO to build the software behind the EOS blockchain (CoinDesk) 

Tron (TRX): Tron-owned video platform criticized for reportedly allowing right extremists to livestream the deadly riot at the U.S. Capitol building last week (CoinDesk) 

Wrapped bitcoin (wBTC): "Burns" outpaced minting in December, first time in project's history, as yields diminished in DeFi (CoinDesk)  

U.K.'s FCA warns investors of high-risk crypto investments and scams (CoinDesk) 

Long-desired bitcoin ETF could actually hurt price in short term, as Grayscale Bitcoin Trust (GBTC) premium arbitrage unwinds, JPMorgan says (CoinDesk) (EDITOR'S NOTE: Grayscale is a unit of Digital Currency Group, which also owns CoinDesk.) 

Israeli trading platform eToro says its so overwhelmed with demand from newcomers who want to trade cryptocurrencies that it has boosted minimum deposit for new users to $1K  from $200 (CoinDesk)   

One bitcoin buyer's experience suggests there are still lots of roadblocks for individuals buying the cryptocurrency (CoinDesk) 

Bitcoin looks like the "mother of all bubbles," Bank of America Chief Investment Strategist Michael Hartnett says (MarketWatch)   

Bitcoin gets less risky the higher it goes, investing legend Bill Miller tells CNBC (CoinDesk) 

A look beneath hood of DeFi stats shows much of recent growth could be due to asset-price appreciation, but some pros say activity is set to increase (CoinDesk)   

Options exchange Deribit lists bitcoin contract with $300,000 strike price in December (CoinDesk) 

Two New York City bars could be yours for only 25 BTC or 800 ETH, New York Post reports (CoinDesk) 

U.S. jobs fell unexpectedly in December, losing 140K jobs in first monthly decline in eight months; unemployment rate holds steady at 6.7% (CNBC) 

Biden calls for "trillions of dollars" of immediate further fiscal support, including direct payments (Bloomberg News)