Market wrap: risk sentiment sends Bitcoin towards $ 30,000

Bitcoin traded lower on Monday, reflecting declines in traditional markets as investors shy away from risky assets amid concerns over weak monetary and fiscal stimulus and increasing cases of COVID-19 , including those caused by the Delta variant.

Bitcoin was trading at around $ 30,600 at the time of publication and has fallen by around 3% in the past 24 hours. The world’s largest cryptocurrency is up around 4% year-to-date, compared to a return of around 12% for the S&P 500 Index.

Regulatory control over stablecoins also weighs on cryptocurrencies. The People’s Bank of China (PBOC) released a white paper on Friday outlining early research for the country’s digital currency project, which appears to challenge existing cryptocurrencies and stablecoins.

“Cryptocurrencies are primarily speculative instruments and therefore present potential risks to financial security and social stability,” the PBOC white paper said.

“Some commercial institutions are even planning to launch global stablecoins, which will bring three risks and challenges to the international monetary system, the payment and clearing system, monetary policies, the management of cross-border capital flows, etc.”, indicates the report.

Another source of selling pressure on risky assets could be the reduction in government stimulus measures. “Too much stimulus breeds complacency,” MRB Partners wrote in a research note released Friday.

MRB also noted widespread asset price inflation, which can lead to market imbalances similar to an episode in Japan in the 1980s that preceded a decade of low investment returns.

The chart below shows Bitcoin’s current range, which is similar to the sideways trend between $ 5,900 and $ 7,400 in 2018. The previous range, although more volatile than the current trend, preceded a close sell-off. by 45%, which prolonged the bear market until prices recovered in mid-2019.

A drop was also seen in Ether (ETH) below the $ 400 price point in 2018, similar to the drop below $ 2,000 last week.

Bitcoin’s short-term volatility is starting to increase after falling from June highs. Some analysts expect the selling pressure to increase, pushing bitcoin below $ 30,000.

“Front-end flights have been hit the hardest, creating a structure of terms with very high volatility,” QCP Capital wrote in a Telegram conversation. “It makes sense to postpone the short positions from July to September given the significant drop in front-end volumes.”

“Frontal flights” refers to “short-term volatility”.

“Bitcoin’s volatility has started to rise and is trading at nearly 80% for expiration in July,” Pankaj Balani, CEO of Delta Exchange, wrote in an email to CoinDesk. “We can see sharp downward moves if BTC convincingly goes below $ 30,000.”

Balani also noted that options sellers have become more aggressive as bitcoin trades in a narrow range. There have been more write-offs at $ 30,000 and $ 32,000 of downward strikes, he said.

Digital asset funds have been attracting capital over the past two weeks, albeit at a slower pace as investors remain cautious after the crypto crash in May. It looks like investors are heating up with the ether, which has seen a third straight week of influx, totaling $ 11.7 million, according to a report from CoinShares.

As the President’s Financial Markets Task Force discusses stablecoins in a meeting today, debates over how coins should be regulated intensify. CoinDesk columnist JP Koning wrote that regulators may have contributed to the rapid growth in the supply of stablecoins due to their failure to close the “pseudonym gap” in these financial products earlier.

In an academic article titled “Taming Wildcat Stablecoins” published on Saturday, Yale economist Gary Gorton and US Federal Reserve attorney Jeffery Zhang said that without proper regulation, the world of stablecoins could evolve into one reminiscent of the 19th century free banking period in the United States.

This isn’t the first time the analogy has been used, and Nic Carter, another CoinDesk columnist explained why.

All digital assets on CoinDesk 20 ended up going down on Monday.