- After briefly retaking the $30K level late Tuesday, Bitcoin has given up those gains following a Semafor report on Binance.
- In other news, U.S. stocks are sharply lower after another strong labor market data point and a Fitch downgrade of the country's credit rating.
Bitcoin (BTC) briefly dipped below $29,000 as cryptocurrency markets erased all overnight gains following a report on the Department of Justice (DOJ) mulling criminal charges against Binance, the world's largest crypto exchange.
Binance could face fraud charges by the DOJ, but prosecutors worry about potentially spurring a bank run on the exchange, similar to what led to FTX's collapse last November, according to a Wednesday report by the online publication Semafor. U.S. officials are weighing alternatives such as "fines and deferred or non-prosecution agreements” to mitigate harm for consumers, the report said citing sources.
BTC plunged as low as $28,933 immediately after the news, CoinDesk Indices data showed, then pared some of the losses as investors digested the development. The token was changing hands at $29,117 at around 18:00 UTC.
Binance's BNB token also dropped 4% on the news, then recovered slightly. It was trading at around $240, still down 2% over the last 24 hours.
"[The news] actually seems less bearish than the headline initially reads," Will Clemente, co-founder of market research firm Reflexivity Research, tweeted. "Binance/DoJ announcement has been overhanging the market for months. Looks like we’re finally getting a resolution and it’s not as bad as expected," he added in a separate post.
BTC, crypto markets erase gains
Bitcoin (BTC) rallied as high as $30,032 during the night before reversing all overnight gains alongside a big slide in stocks and gains for U.S. Treasury yields following more indications of labor market strength.
The pullback erased all gains that occurred after bitcoin holder MicroStrategy announced plans to raise funds to boost its coin stash, and the rating agency Fitch downgraded its credit rating for the U.S. government, from AAA to AA+, citing repeated brinkmanship over the debt ceiling.
The CoinDesk Market Index, a measure of crypto markets performance, sit 0.09% lower on a 24-hour basis despite the overnight surge, showcasing the retracement.
The dollar index (DXY), which tracks the greenback's value against major fiat currencies, fell from 102.14 to 101.95 in a knee-jerk reaction to the ratings downgrade, only to bounce back to 102.64 at press time. The 10-year Treasury yield chalked out a similar drop and pop to hover above 4%. Bitcoin tends to move in the opposite direction of the greenback and bond yields.
Two of the so-called big three rating agencies have now placed the default rating at AA+. Moody's still has a top rating of AAA.
The S&P downgraded the U.S. to AA+ on Aug. 5, 2011, following which the dollar index and Treasury yields initially declined but quickly bounced back. Stocks tumbled, with bitcoin falling over 38% in the same month, data from TradingView show. The only major asset to rally alongside DXY was gold, which gained over 10%.
If history is a guide, the dollar index looks set to rise further, bringing more pain to bitcoin and stocks, although impending buying pressure from MicroStrategy might support the cryptocurrency's price.
As of writing, futures tied to the S&P 500, Wall Street's benchmark equity index pointed to a negative open with a 0.5% drop. As Asia began its business day, bitcoin jumped past $30,000 after software developer and bitcoin whale MicroStrategy submitted a filing with the Securities and Exchange Commission (SEC) to sell up to $750 million in stock with the intent of using the capital to purchase more BTC.
Major U.S. equity indexes – Nasdaq Composite and S&P 500 – fell 2.2% and 1.4%, on Wednesday.
In a note to CoinDesk, Mark Connors, the head of research at Canadian digital asset manager 3iQ, wrote that the recent "shift in market sentiment was NOT limited to digital assets, as equities took a breather."
"Our bellwether cross asset correlation metric hit a 20Y high as bonds and equities sold off," Connors wrote. "Looking forward, we will monitor for any sharp reversal from this historically high correlation - as that has often signaled a risk reversal."
ETH, LTC, CRV track BTC lower
Litecoin (LTC) plunged 6% during the day as the token underwent its anticipated halving event. Similar to Bitcoin halvings, the event cuts the rewards for miners in half every four years, curbing the issuance of new tokens. During the prior two occasions, LTC price hit a peak before the halving date and slid lower for months. The token this time is down 22% from its yearly high recorded a month ago, CoinDesk Indices data shows.
Curve's CRV token pulled back 5% to 58 cents. The cryptocurrency rose more than 20% to over 62 cents on Tuesday, likely on the back of a short squeeze. The increase came after Sun purchased more than $2 million worth of the token and pledged additional assistance through a liquidity pool on the Tron network. Curve fell victim to an exploit late Sunday, triggering a sell-off in CRV that got the market worried about potential liquidation of Curve founder's large borrowed position.
"Clearly, there are fears over a liquidation cascade happening within the Ethereum DeFi ecosystem, Richard Mico, the U.S. CEO of payment-and-compliance infrastructure provider Banxa, wrote in an email to CoinDesk. "I don’t know how likely such a cascade is, but the market seems jittery as a result of these metastasizing issues. What’s ironic is that DeFi had held up so well during the blowups of 2022, and yet it’s an exploit more recently that might be the trigger for a DeFi blowup itself now."
Mico added that a judge's ruling against stablecoin issuer Terraform Labs' motion to dismiss a lawsuit against the SEC might "be adding to the relatively soft sentiment in the market," but he noted that investors were buying up bitcoin's recent "dips below $29,000...pretty quickly," a sign that buyers are accumulating in expectation of the SEC approving one of the recent spot BTC ETF applications.
UPDATE (August 1, 2023, 23:43 UTC): Changes headline and opening paragraphs to reflect MicroStrategy filing and bitcoin price increase.
UPDATE (August 2, 2023, 1:24 UTC): Reflects latest price increases for bitcoin and altcoins.
UPDATE (August 2, 2023, 18:16 UTC): Updates with latest price declines following Semafor's Binance report.
UPDATE (August 2, 2023, 20:38 UTC): Adds LTC price, updates equity market closing prices.
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