Cryptocurrencies rebounded on Wednesday as short sellers covered positions ahead of Tesla CEO Elon Musk’s appearance at The B Word Conference. Bitcoin was trading at around $32,000 at press time and is up 8% over the past 24 hours. The sharp price bounce reflects positive sentiment in an attempt to reverse a monthlong downtrend largely driven by regulatory uncertainty.
During The B Word conference on Wednesday, Musk boosted bullish sentiment as he announced that SpaceX, one of the companies he founded, holds bitcoin on its balance sheet. Musk also stated that he personally owns ether. The announcement contributed to the rising prices across cryptocurrencies on Wednesday with ether breaking above $2,000 for the first time since July 14.
- S&P 500: 4358.7, +0.82%
- Gold: $1804.2, -0.34%
- 10-year Treasury yield closed 1.293%, compared with 1.214% on Tuesday.
There is also word that environmental concerns are starting to wane as miners adjust operations to reduce their carbon footprint. The result could encourage those larger investors waiting for an appropriate time to allocate money to cryptocurrencies while fulfilling their environmental, social and governance (ESG) mandate.
“China’s mining crackdown has drastically improved bitcoin’s environmental impact as miners have headed to the cheapest sources of energy on the planet, which more often than not are renewable, and a lot of older and more inefficient mining equipment has been taken offline,” Alexandra Clark, a sales trader at GlobalBlock, wrote in an email to CoinDesk.
Not all analysts are convinced that bitcoin will continue higher.
“That said, this does not suggest that another rally looms, it simply implies that cyclically speaking these digital currencies are less overbought with its cyclical trend now facing downward pressure,” MRB wrote.
Bitcoin futures positioning
The number of open positions in bitcoin futures continues to rise, and what appears to be a proliferation of short sellers indicates a dour market mood. That may bring volatility on the higher side, wrote CoinDesk’s Omkar Godbole.
Open interest, or the number of futures contracts traded but not squared off with an offsetting position, reached the highest tally since May 18 on Tuesday, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion.
All things considered, the futures market is mainly biased bearish, which leaves the door open for sharp corrective rallies in bitcoin’s price. When leverage is skewed to the bearish side, a move higher often results in forced closure of short positions (exchanges square off shorts). That, in turn, puts upward pressure on the cryptocurrency’s price, leading to exaggerated price moves.
Crypto sentiment has reached a new low, according to some “fear/greed” measures. It is likely that extreme fear caused shorts to cover positions as bitcoin dipped to below $30,000 on Tuesday.
Arcane cautioned that investors should beware of the timeliness of some fear/greed measures, especially in traditional markets.
Retail interest slows
Google searches for bitcoin have declined since March 2020, coinciding with the crypto sell-off. The current level of relative search interest is not yet at the 2017 low, which “might be a sign that many retail investors and the general public were already aware of Bitcoin prior to the recent price movements this year,” Coin Metrics wrote in a Tuesday newsletter.
“Institutional adoption is a big reason for Bitcoin’s recent successes in 2020/2021, which will not be captured easily from Google search interest,” Coin Metrics wrote.
A similar scenario is seen in the interest in Ethereum, which has benefited from the popularity of decentralized finance (DeFi) over the past year.
Bitcoin Miner Resilience
Bitcoin miners are still accumulating the cryptocurrency, even though some miners are migrating to other places after China started cracking down on crypto mining. “It is possible that additional sell-side pressure from offline distressed miners is being more than offset by the extraordinary profitability by remaining operational miners,” Glassnode wrote.
Stablecoins in the spotlight
Tether executives went on CNBC’s online show “Tech Check” to answer questions about USDT. An audit for Tether, issuer of the largest stablecoin, USDT, could be “months away, not years,” Stuart Hoegner, Tether's general counsel, said in the interview on Wednesday.
Meanwhile, Paxos released a breakdown of reserves of its stablecoins, PAX and BUSD, for the first time: Some 96% of the reserves were held in cash and cash equivalents, while 4% were invested in U.S. Treasury bills as of June 30.
The disclosures come during a time when regulators have been paying increasing attention to stablecoins. Speaking to the American Bar Association on Tuesday, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said the prices of cryptocurrencies might fall under securities laws.
- Elon Musk boosts dogecoin price, again: The price of dogecoin jumped roughly 9% to $0.213 after Elon Musk reiterated that he personally holds the cryptocurrency in addition to bitcoin and ether at The B Word, before it falls back to $0.188 as of press time. However, among the 243 digital assets in the S&P Cryptocurrency Broad Digital Market (BDM) Index, dogecoin is not in.
- Argentina province to issue own stablecoin: The Argentinian province of Misiones will issue its own native stablecoin. According to an official statement published by Misiones’ secretary of finance on July 15, the province has enacted a law authorizing the stablecoin, which will allow it to create a new financing and transaction tool. The project was approved by Misiones’ House of Representatives and is being studied by an interdisciplinary team that includes Adolfo Safrán, the province’s minister of finance.
Most digital assets on CoinDesk 20 ended up higher on Wednesday. In fact, everything was in the green except for dollar-linked stablecoins.
Notable winners as of 21:00 UTC (4:00 p.m. ET):
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