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Market Wrap: Bitcoin Rallies Ahead of Senate Compromise

Bitcoin and ether remain well bid as U.S. senators reach a compromise on the crypto provision of the infrastructure bill.

Aug 9, 2021 at 8:28 p.m. UTC
Updated Sep 14, 2021 at 1:37 p.m. UTC

Cryptocurrencies are in rally mode as bitcoin held above $45,000 on Monday. Buyers were active ahead of a U.S. Senate compromise on tax-reporting requirements for digital assets. Crypto-related stocks such as Riot Blockchain (NASDAQ: RIOT) and Coinbase (NASDAQ: COIN) moved higher in a mixed day for the overall stock market in hopes for regulatory clarity. 

Ether was also well bid above $3,000 at press time and is up 21% over the past week, compared with an 18% rise in bitcoin during the same period.

Latest prices

Cryptocurrencies:

Traditional markets:

  • S&P 500: 4432.4, -0.09%
  • Gold: $1729.9, -1.88%
  • 10-year Treasury yield closed at 1.318%, compared with 1.307% on Friday.

Bitcoin above 200-day moving average

Bitcoin pierced the 200-day moving average for the first time since April 2020, which preceded a broad crypto rally. “With bitcoin crossing above its 200-day, we think bitcoin will rally strongly into year-end,” Thomas Lee, managing partner of FundStrat, wrote in a Monday newsletter.

Forward returns tend to be bullish for bitcoin after a successful break of the 200-day moving average. Technical charts suggest the next resistance will be around $50,000 to $55,000. 

Chart shows bitcoin forward returns after breaking above the 200-day moving average.

Kimchi premium

The “kimchi premium,” which represents the difference between bitcoin’s price on South Korean exchanges and the going rate on other global trading venues, is at a six-month low, according to data from CryptoQuant. 

Typically a rising kimchi premium reflects trading frenzy in South Korea relative to the U.S. At times, a peak in the premium can precede a sell-off in bitcoin. 

This time, the “kimchi discount” could reflect a significant decline in South Korean trading activity because of regulatory crackdowns. 

Earlier this year, South Korea passed comprehensive cryptocurrency laws, which provided a framework for the legalization of crypto exchanges. In June, however, South Korea passed new legislation to increase supervision of cryptocurrencies. Banks have been reluctant to partner with crypto exchanges amid growing concerns about regulatory crackdowns and the financial risk of stablecoins. 

Chart shows bitcoin's kimchi premium over time.

Digital asset fund flows

Despite experiencing outflows for the fifth straight week, digital-asset funds saw their assets under management hit their highest level since mid-May, CoinDesk’s Lyllah Ledesma wrote

The market share for ether, the native cryptocurrency of the Ethereum blockchain and the second-biggest overall after bitcoin by market cap, is rising rapidly and now represents 26% of all digital investment products, compared with just 11% at the beginning of the year.

Although bitcoin has also seen positive price movements in the last few weeks, the cryptocurrency continued to bear the brunt of the outflows, totaling $33 million last week. 

Chart shows weekly digital asset fund flows.

Ether implied volatility

Ether’s implied volatility dropped sharply last week as the cryptocurrency rallied nearly 30%. The sell-off in implied volatility was particularly strong on the short end of the historical term structure over the past few days, according to data from Skew

Bullish sentiment is rising in the ether options market as call volumes increase relative to put volumes. Option traders are pricing in a roughly 30% chance of ETH trading above $3,500 by month’s end. 

Chart shows ETH at-the-money implied volatility.

Altcoin roundup

  • Tether reveals more details about its reserves: Tether Holdings Ltd., issuer of the largest stablecoin USDT, has provided in a new attestation report more details than ever before on the composition of its $62.8 billion of reserves. According to the report, $30.8 billion, or 49% of Tether’s reserves, was held in CP and CDs, out of which roughly 93% was rated A-2 and above and 1.5% below A-3 as of June 30. Tether’s executives earlier told CNBC that the commercial paper it held was rated “overwhelmingly rated A-2 or better.”
  • Circle says it wants to be a national crypto bank: Circle, which is planning to go public, said Monday it intends to become “a full-reserve national commercial bank.” If it gets regulatory approval, the proposed digital currency bank would operate under the supervision of the U.S. Federal Reserve, U.S. Treasury, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC). ​​“We are embarking on this journey alongside the efforts of the top U.S. financial regulators, who through the President’s Working Group on Financial Markets are seeking to better manage the risks and opportunities posed by large-scale private-sector dollar digital currencies,” Circle said in a blog post.
  • Wormhole Launches: Wormhole, a communication bridge between Solana and other top decentralized finance (DeFi) networks, began supporting inter-blockchain message transfers on Monday. In simple terms, the protocol will help crypto assets like tokens and non-fungible tokens (NFTs), and even price data, flow between blockchain networks that don’t usually talk to each other. Wormhole supports the Binance Smart Chain, Ethereum and Terra.
  • Binance to Perform Reverse Splits on UNIDOWN, LTCDOWN: The exchange will consolidate UNIDOWN and LTCDOWN tokens by 100,000 to 1. Crypto exchange Binance said it will perform reverse splits on certain trading tokens linked to litecoin and uniswap. UNIDOWN and LTCDOWN – which generate leveraged gains when the underlying crypto assets decrease in price – will undergo a 100,000:1 reverse token split. The process consolidates existing tokens into a smaller number with higher value.

Relevant news:

Other markets

All digital assets on CoinDesk 20 ended up higher on Monday.

Notable winners of 21:00 UTC (4:00 p.m. ET):

litecoin (LTC) +12.85%

dogecoin (DOGE) +8.01%

the graph (GRT) +7.75%

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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