The largest cryptocurrency, just like the rest of the crypto industry, remains highly exposed to downside risk as it continues to deal with the fallout from the FTX exchange’s implosion.
Contagion is the world on everyone’s lips in November – just like Terra’s collapse earlier this year – fears that new victims of the FTX giant’s liquidity vortex will continue to crop up.
The stakes are certainly high. The initial shock may be over, but the consequences are just beginning to unfold.
These include issues that go beyond just financial losses, as lawmakers try to grapple with FTX and put renewed focus on bitcoin and cryptocurrency regulation sooner.
With that said, it’s no wonder that price action across crypto assets has been subdued at best – and there are plenty of voices arguing that the worst is yet to come.
Cointelegraph takes a look at some of the key factors to keep in mind this week when it comes to BTC price performance.
FTX infection turns into GBTC
As clouds swirl over the fate of the ex-FTX executives and CEO, Sam Bankman-Fried, commentators and cryptocurrency investors alike wonder where the contagion will spread next.
Emotions suggest that everyone expects the worst. A case in point is Genesis Trading, part of the Digital Currency Group (DCG), which last week halted payments in its cryptocurrency lending arm.
This not only led to a series of rumors about Genesis’ solvency, but also about DCG’s future. The executives’ reassurances failed to stem the narrative, which also focused on bitcoin’s largest institutional investment vehicle, the Grayscale Bitcoin Trust (GBTC).
And so, over the weekend, the growing GBTC controversy spilled over into a full-blown panic about financial buoyancy.
As Cointelegraph reported, the matter was made worse by Grayscale’s refusal to provide address details to prove its BTC reserves, allegedly for security reasons.
The over $1 billion DCG owes Genesis adds to the melting pot of suspicion.
Meanwhile, some well-known investors have added to their GBTC positions in recent weeks.
“Is the next GBTC black swan just around the corner?” Stockmoney Lizards trading source queried on Twitter:
“GBTC holds roughly 648k bitcoins. Grayscale discount up to 43% as FTX is rampant. Great uncertainty. Lots of hysteria in the market and everyone is looking for a reason for 10k bitcoins. Keep calm, bear markets are ending in winter!”
Further controversy centers on GBTC’s discount to the Bitcoin spot price, which is now nearly 50% for the first time ever.
GBTC premium vs asset holdings vs BTC/USD chart. Source: Coinglass
Former BitMEX CEO Arthur Hayes even flagged a blog post from July that ventured that DCG had worked with defunct trading firm Three Arrows Capital (3AC) to “extract value from the GBTC premium.”
After Grayscale’s legitimacy was secured last week, Coinbase was the likely target of Timothy Peterson, chief investment officer at Cane Island Alternative Advisors.
“To all the GBTC Grayscale $collectible skeptics: Why not short $COINcoinbase?” Ghammer on Twitter:
They are the bouncers and will be the ones to commit the fraud. The coin size is 10x the size of GBTC; The stock will go to 0 and the executives will go to jail. You’ll be rich and go on vacation.”
Meanwhile, BitGo CEO Mike Belshe blamed putting GBTC – and FTX – firmly on the door of the US regulator the Securities and Exchange Commission (SEC).
“By failing to create a bitcoin ETF, the SEC: -allowed greyscale -> GBTC trading to rip hash for 5+ years -created negative GBTC premium -imposed most cryptocurrency trading outside of US jurisdiction – Let the FTX scam hit millions of Americans summed up in a section of the Twitter discussion.
In related FTX developments, hacked funds are moving from the exchange, with tens of thousands of ether
Converted to BTC this weekend.
Downside risks in numbers
Bitcoin is understandably between a rock and a hard place under the current circumstances.
BTC/USD has failed to catch a breather since the FTX implosion, testing levels not seen in two years and sending mounting calls for more capitulation.
The question for traders and analysts is how far this capitulation can go.
As Cointelegraph reported, targets include $13,500, $12,000, and even $10,000 or less this winter.
The situation has not been helped by the recent weekly close, which is bitcoin’s weakest since November 2020 at around $16,250, with fresh losses emerging since then, data from Cointelegraph Markets Pro and TradingView shows.
BTC/USD 1-week candlestick chart (Bitstamp). Source: TradingView
“Volume is decreasing. Bollinger Bands are hitting many timeframes.” Analyst Matthew Hyland warned before the close.
A look at the volatility on the daily chart showed Bollinger Bands expanding with price testing the lower band at the time of writing on November 21 – Analytics