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Bitcoin stays in tight range as analyst eyes potential ‘interesting week’ in BTC
Bitcoin (BTC) hovered near $43,000 on Jan. 17 as “boring” price action combined with signs that the market could be stabilizing.
Leverage comes off all-time highs
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD staying firmly within its established trading range between $40,000 and $45,000.
With few surprises expected thanks to the Wall Street holiday, traders took the opportunity to call for a level-headed approach on focus on altcoins.
Bitcoin is down a few hundred dollars! Quick, someone come up with a narrative for this incredible crash and spread it around the media and twitter!
(This is sarcasm, nothing is happening, Bitcoin is sideways and boring)
— The Wolf Of All Streets (@scottmelker) January 17, 2022
Popular analyst William Clemente meanwhile highlighted Bitcoin bouncing along an ascending trendline this month, this soon to approach a turning point as part of a wedge construction.
“Should be an interesting week,” he forecast.
Beyond spot price, data showed that market composition still employed near all-time high leverage, this only just beginning to reduce in week two of January.
Such leverage prevalence previously sparked concerns that a liquidity cascade could be made all the more real, with a significant move up or down hitting traders.
“The highly increased leverage ratio of Bitcoin that since some days remains at an all-time high is showing concerns that a massive volatility increase will follow up,” commentator Vince Prince warned on the day.
“Technically if Bitcoin breaks the $40,000 level this will trigger a big chunk of stop-losses.”
Cardano stands out among altcoins
On the topic of altcoins, meanwhile, some moves diverged from the flat performance seen more broadly.
Related: BTC ‘likely’ to repeat Q4 2020 move — 5 things to watch in Bitcoin this week
The top 10 cryptocurrencies by market cap were led by Cardano (ADA), which conspicuously bucked the sideways trend to post daily gains of almost 9% at the time of writing. This placed ADA/USD at a three-week high.
“Crucially, the market psychology is working on $ADA again,” Cointelegraph contributor Michaël van de Poppe summarized.
“Last weeks the sentiment was comparable to a graveyard and expectations were that it would go south. Now, the sentiment is switching and the hype is getting back in.”
Further down, Litecoin (LTC) managed 4.5% gains in some brief respite for hodlers.
Litecoin’s friend intervened, told him life was worth living and said “think of your family.”
Litecoin said “NOT TODAY” and stepped back from the ledge.
Another bounce at strong support. A break of the blue resistance should send this flying. Not there yet. https://t.co/CvJtodHwNB pic.twitter.com/VOC5psrUhF
— The Wolf Of All Streets (@scottmelker) January 17, 2022
“Another bounce at strong support. A break of the blue resistance should send this flying. Not there yet,” trader, analyst and podcast host Scott Melker added about the LTC/USD pair.
Over-the-counter, or OTC, trading refers to any trading that is not done via an automated exchange. What exactly is OTC trading? Who does it, and why? To learn more about what an OTC desk is and how these “under the radar” exchanges operate, Magazine spoke to a few insiders to get the scoop.
The most popular conception of OTC trading revolves around massive off-market deals, like when companies such as MicroStrategy make multimillion-dollar purchases using OTC desks run by the likes of Coinbase or Kraken.
OTC trading is, however, not the exclusive domain of the rich, as it can also refer to peer-to-peer platforms like LocalBitcoins, which has been helping individuals trade BTC both in-person and via bank transfer since 2013. Even some crypto ATMs can be categorized as OTC trading, as these transactions do not always clear on an exchange. In between these two are medium-sized regional OTC desks, which facilitate purchases and sales of crypto by both individuals and companies.
Going over-the-counter
Why do people seek out OTC deals in the first place when existing exchanges like Binance and Coinbase offer easy fiat on-ramps?
Amin Rad, CEO of Dubai-based OTC broker Crypto Desk, explains that this way of trading offers advantages for some people. He says there are only “a few ways of converting fiat currency into cryptocurrency,” highlighting three:
1. Credit and debit cards are a popular way for new users to purchase cryptocurrency via an exchange, but they come with high fees of up to 10%. However, many banks and credit card issuers still consider such transactions suspicious, locking or even closing accounts after learning the nature of the transactions. On the exchange side of things, the credit cards of certain countries — including Russia, Kazakhstan and Ukraine — are automatically rejected. “A further limitation is that users cannot sell crypto in this way, only buy it,” Rad adds, as it is usually impossible to “withdraw” money onto a credit card.
2. “The second channel is purchasing through bank transfer,” he says, which involves sending fiat to an exchange’s bank account. Rad considers this problematic because many banks, in some countries more than others, don’t want to be associated with cryptocurrency nor have their clients trade it. “If you want to do a bank transfer, 99% of the time you will have to lie to the bank because otherwise, they will close the account,” he says, with his views likely most applicable to his own region, the United Arab Emirates. [Editor’s note: Don’t lie to your bank lest you end up like Peter McCormack.]
Banks that do tolerate transfers to cryptocurrency exchanges may still involve their compliance teams to ask detailed questions regarding the exact destination of funds and the reasoning behind crypto purchases. And when transfers do go through, they can take several days. Someone might try to wire money to an exchange on Monday to buy BTC at $30,000, only to watch it rise to $40,000 before the money arrives on Thursday.
3. OTC is the third method, allowing buyers and sellers to exchange directly or via a trading desk such as the one Rad operates. No credit cards are involved, and banks cannot easily determine that the funds sent to them are destined to be used for cryptocurrency. With immediate confirmations of receipt, there is no need to wait around for days and potentially miss an opportunity.
“A big driver of OTC is that it allows a buyer to deal with larger amounts of cryptocurrencies, such as 100 BTC from one seller at one agreed price, as compared with buying over an exchange,” explains Jerry Tan, OTC payments manager at Singapore-based exchange XT, which operates an OTC desk.
From the perspective of whales, such as funds that deal in large sums of cryptocurrency, OTC desks are valuable due to their ability to conduct large trades without moving the market against them. This effect is known as “slippage” and occurs when large-scale buying causes prices to immediately rise before the targeted amount of cryptocurrency has been purchased, while selling causes it to fall before it’s all sold.
“Odds are that a single seller in the order book is not able to transact such a large amount as 100 BTC. Hence, you will need to buy from multiple sellers at higher prices. This is where slippage from your initial desired price occurs.”
Despite the many reasons to engage with OTC trading, there are risks, according to Victor Olmo, fund partner at NewTribe Capital. “One of the most significant is counterparty risk — the possibility of the other party’s default before the fulfillment or expiration of a contract,” he explains. Scams are another common pitfall, many of which were described in a recent Journeys in Blockchain article profiling Rad and his Crypto Desk OTC exchange.
Who uses OTC exchanges like Crypto Desk?
Though Rad’s operations are local to the UAE, he says clients tend to fit into two major categories: Local buyers of cryptocurrency tend to represent “traditional finance” diversifying into the industry, while expat sellers already hold crypto and need to swap it for local currency “in order to purchase real estate, cars and pay their living expenses in the UAE.”
These expenses may even include the purchase of real property, in which case it is quite understandable that neither sellers nor buyers want to risk going through a traditional exchange and bank transfers, as banks may block, freeze or question large sums being withdrawn directly from crypto exchanges. Though his daily turnover is in the single-digit millions, it tends to consist of several much smaller OTC deals that are not above the means of fairly normal people — many of whom do not want to risk trouble with their banks, which might block transfers between crypto exchanges.
Differing regulations
The Dubai-based Crypto Desk is an example of a brokerage with a low regulatory threshold, as clients must only prove their identity and sign a declaration letter saying that they are not involved in terrorism, money laundering or trading with sanctioned countries. “Once I obtain this from you, I am safe. Even if the government comes after you later, I can say I did my job.” Rad says he is not required to report transactions, no matter their size, but he keeps records indefinitely.
When it comes to other OTC desks, regulations are usually on par with normal exchanges in terms of KYC identity requirements, though they tend to be less policed.
According to Panu Peltola, chief compliance officer of Finland-based LocalBitcoins, most regions in the world are tightening regulations. He cites Asia as having some of the “most advanced” regulations, followed by North America.
“The EU is just planning more comprehensive regulation,” he notes regarding proposed rules to flag all transactions over 1,000 euros from “unhosted wallets” — any wallet whose private keys are not held by a centralized company like a crypto exchange or payment provider.
“Global policymakers have taken note of the increasing volumes and adoption rates and are currently balancing innovation, growth and risks.”
In the United States, all transactions above $10,000 involving cash must be separately reported to the Internal Revenue Service, regardless of whether an individual or financial institution is receiving the cash. This form requires the full personal information of whomever the cash was received from. Though only a minority of OTC deals involve physical cash, this $10,000 line in the sand, similar to the EU’s proposed 1,000 euro limit, also marks the maximum limit after which financial institutions across the U.S. must report electronic money transfers. The real values of these sums are notably getting progressively smaller due to compounding inflation.
The regulatory landscape in Asia, which has many more countries and lacks supranational centralized decision-making organs like the EU, appears more fragmented and difficult to describe, with each country having its own existing and forthcoming regulatory procedures. Mainland China, a country with strict capital controls, is perhaps the most restrictive, with its ambition to completely ban trading and mining. In October 2021, Cointelegraph spoke with Henri Arslanian, PwC crypto lead and former chairman of the FinTech Association of Hong Kong, regarding a “flood” of brick-and-mortar OTC shops, many of which are located in touristic areas to cater to visitors from the mainland.
“One could assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying crypto at these OTC shops.”
But even Hong Kong, a place once considered among the world’s most financially open, is on the cusp of banning the retail trading of cryptocurrency, which would theoretically include OTC, likely sending OTC shops underground.
Singapore recently introduced stricter measures, according to Tan from XT. “Companies that wish to operate cryptocurrency trading and OTC services to Singaporeans have to obtain a license from the Payment Services Act,” he explains, adding that exchanges without the PSA license are not allowed to offer services to Singaporeans. In addition, all Bitcoin ATMs on the island were ordered to shut down earlier this year.
Talking money
So, how do OTC desks make money? With spread, in a way comparable to normal exchanges. While popular exchanges might charge 0.25% on transactions, it is common for OTC desks to take well above 1% in commission. Back in 2017, 2%–3% margins were common, Rad says.
Fundamentally, an OTC desk operates either by matching buyers and sellers or by fulfilling orders automatically from its own liquidity pool, with the former carrying less overhead and risks for the exchange and the latter allowing for instant transactions. “That’s why clients prefer to deal with me,” Rad says regarding his desk’s advantage in having its own pool of funds that allow for reliable transactions.
Another differentiator between desks is whether they trade fiat for cryptocurrencies like Bitcoin or Ether or only for stablecoins like USDT or USDC. In recent times, there has been a trend toward stablecoins because they give buyers greater flexibility to exchange into more volatile cryptocurrencies when they see fit. Some exchanges such as Rad’s Crypto Desk deal exclusively with stablecoins, further reducing the risks of maintaining a liquidity pool.
Rad is confident that the OTC market will flourish, both among retail and institutional clients, due to its more direct, intimate nature when compared with larger exchanges. For many, dealing person-to-person is more comfortable than wiring money to an exchange overseas, especially when it comes to making large, one-off transactions.
“Local [OTC] exchanges will control the local markets because they have better knowledge about their own market — they have better compliance solutions and better licensing solutions.”
The cryptocurrency market has lost $1.9 trillion six months after it soared to a record high. Interestingly, these losses are bigger than those witnessed during the 2007’s subprime mortgage market crisis — around $1.3 trillion, which has prompted fears that creaking crypto market risk will spill over across traditional markets, hurting stocks and bonds alike.
Stablecoins not very stable
A massive move lower from $69,000 in November 2021 to around $24,300 in May 2022 in Bitcoin’s (BTC) price has caused a selloff frenzy across the crypto market.
Unfortunately, the bearish sentiment has not even spared stablecoins, so-called crypto equivalents of the U.S. dollar, which have been unable to stay as “stable” as they claim.
For instance, TerraUSD (UST), once the third-largest stablecoin in the industry, lost its dollar peg earlier this week, falling to as low as $0.05 on May 13.
Meanwhile, Tether (USDT), the largest stablecoin by market cap, briefly fell to $0.95 on May 12. But unlike TerraUSD, Tether managed to recover back to near $1, primarily because it claims to back its dollar peg using good old-fashioned reserves, including the real dollars and government bonds.
Crypto spillover risks
But that is where the trouble begins, according to a warning issued by rating agency Fitch last year. The agency feared that Tether’s rapid growth could have implications for the short-term credit market, where it holds a lot of funds, according to the company’s reserves breakdown disclosed here.
If traders decide to dump their Tether, the most-popular dollar-pegged stablecoin in the crypto sector, for cash, it would risk destabilizing the short-term credit market, Fitch noted.
Crypto losses now equal $1.7 trillion. The 2007 subprime mortgage market was $1.3 trillion.
It’s highly likely that Crypto will be the catalyst for accelerated global collapse.
Weekend risk is HIGH. pic.twitter.com/4Ewo73uTeg
— Mac10 (@SuburbanDrone) May 12, 2022
The credit market is already struggling under the weight of higher interest rates. Tether could further pressure it lower as it holds $24 billion worth of commercial paper, $35 billion worth of Treasury notes, and $4 billion worth of corporate bonds.
The signs are already visible. For example, Tether has been reducing its commercial paper reserves during the crypto correction in the last six months, its chief technology officer, Paolo Ardoino, confirmed on May 12.
So, based on Fitch’s warning last year, many analysts fear that the “financial run” might soon spill over to the traditional market.
That includes Joseph Abate, managing director of fixed income research at Barclays, who believes Tether’s decision to sell its commercial papers and certificate deposit holdings before maturity could mean paying several months of interest in penalty.
As a result, they could be forced to sell their liquid Treasury bills, which make up 44% of their net holdings.
Related: What happened? Terra debacle exposes flaws plaguing the crypto industry
“We do not know what is going to happen, but the danger cannot be dismissed out of hand,” opines Robert Armstrong, the author of Financial Times’ Unhedged newsletter, adding:
“Stablecoins have a total market capitalization of more than $150 billion. If the pegs all break — and they could — there will be ripples well beyond crypto.”
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin (BTC) failed to clinch $31,000 by the Wall Street open on May 13 as new warnings forecast a continuation of the downside.
Dollar declines, stocks bounce at week’s end
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD consolidating after reaching just short of $31,000 earlier on the day.
United States stock markets saw some relief, the S&P 500 up 2.2% and the Nasdaq gaining 3.3% on the open.
The conspicuous exception was Twitter stock, which at the time of writing traded down 7.7% on the day, thanks to Elon Musk delaying his takeover bid.
In parallel to the renewed equities strength came a declining U.S. dollar, with the U.S. dollar index (DXY) coming off fresh twenty-year highs to decline 0.2% — traditionally a boon for Bitcoin and risk assets more broadly.
$DXY – Finally showing some sort of chance for a pullback. This would help #Bitcoin and #Stocks. Still early to tell but it’s better than seeing another green candle. pic.twitter.com/WZ3vSUwZsd
— IncomeSharks (@IncomeSharks) May 13, 2022
As optimism around Bitcoin slowly returned in the midst of the Terra LUNA blowout, some sources still argued that it was far from guaranteed that a deeper BTC price crash would be avoided.
Among them was on-chain analytics platform Material Indicators.
“This BTC rally could continue, but before you FOMO in, ask yourself what has changed fundamentally?” part of its latest Twitter update stated.
“IMO, the macro bottom is not in yet.”
An accompanying order book chart from major exchange Binance showed moderate support in place below the spot price, this nonetheless being little in comparison to the main wall at this week’s $24,000 lows.
Equally wary was popular trading account HornHairs, which demanded a reclaim of up to $50,000 on the weekly chart to avoid a capitulation event.
“Until then, there is a real chance we could chop around & dead cat bounce here for a few weeks into another flush down to $20k for accumulation bottom,” a recent tweet read.
As Cointelegraph reported, a further theory suggested that to preserve its tradition of 80% drawdowns from all-time highs, BTC/USD would need to dive to just $14,000.
Hayes: I would buy Bitcoin at $20,000, Ethereum at $1,300
As the dust settled on markets this week, another voice reiterated his existing concerns over a fresh meltdown to come.
Related: Canadian Bitcoin ETF adds 6.9K BTC in one day as GBTC discount hits record low
In his latest blog post concerned primarily with the LUNA phenomenon, Arthur Hayes, former CEO of crypto derivatives platform BitMEX, called for $20,000.
“The crypto capital markets must be allowed time to heal after the bloodletting concludes. Therefore, it is asinine to attempt to fathom legitimate price targets. But I shall say this — given my macro view about the inevitability of more money being printed, I will close my eyes and trust the Lord,” he wrote.
“Therefore, I am a buyer at Bitcoin $20,000 and Ether $1,300. These levels roughly correspond to the all-time highs of each asset during the 2017/18 bull market.”
Hayes had previously called for $30,000 to hit in June, before this week’s shake-up unfolded. Longer-term, however, he had likewise told readers to prepare for an extended period of pain across crypto-assets and stocks alike.
By 2030, he said, Bitcoin should cost “in the millions” of dollars.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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