Riding The Wave News Summary #55
Bitcoin and Ethereum Prices Rallied This Week. It Won’t Last, According to These Experts, Celsius’ Positions are Now Healthier, Three Arrows Capital Was a 'Victim of Contagion' - Nansen, & more
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Cryptocurrency prices have been on the rise in recent days, but some experts don’t expect it to last.
Bitcoin rose 5% and topped nearly $22,000 over the weekend — a big leap from when it fell to nearly $17,500 earlier this month. Ethereum saw a big jump too, rising to above $1,200. For investors, a big question still lingers: Is the crypto market truly recovering or is it just another false alarm, also known as a bull trap?
Some experts say signs point to a bull trap and investors should be wary, warning the worst may be yet to come amid ongoing macroeconomic uncertainty — and bitcoin’s price, as well as other cryptocurrencies, could drop even further.
“While we have seen bitcoin and ethereum rally recently after creating lows around $17,500 and $880 respectively, we are unconvinced about calling a low in place yet,” says Richard Usher, head of over-the-counter trading at BCB Group, a crypto financial firm. “The general risk environment remains on a knife edge, and while we think risk assets will rally significantly toward the end of the year, we see risks skewed to one more sell-off first.”
But with war raging in Ukraine, rising interest rates, inflation soaring, and talks of an impending recession, the coast is far from clear, experts say. Many are calling what we’re seeing with crypto prices this week a bull trap.
That’s when a stock or cryptocurrency reverses back down after a convincing rally and breaks below a prior support level. Basically, it’s a false signal, fooling investors into thinking the market is done falling and that it’s a good time to buy.
Experts say there will likely be another sell-off in the crypto market over the next few weeks or months. Wendy O, a crypto expert and educator, expects ethereum could fall as low as $750 and bitcoin could fall to $10,000. Kiana Danial, entrepreneur and author of “Cryptocurrency Investing for Dummies,” predicts bitcoin will fall to $11,000, while venture capitalist Kavita Gupta is calling for a bottom of $14,000 for bitcoin and $500 for ethereum.
I’m also not convinced that we have put a bottom in although I don’t think we will go as low as $10,000. Personally, I’m waiting to invest my remaining funds until we see a strong break out of our current downtrend or a drop significantly lower due to macroeconomic capitulation.
An important piece of information to note regarding all of the above is that it works off of the assumption that crypto and traditional markets stay coupled, if we see a recession it’s completely possible a small rally breaks the coupling causing Crypto to move up instead of down with traditional markets.
Troubled crypto lender Celsius (CEL) has managed to improve the health ratio of its on-chain positions since pausing withdrawals, according to blockchain analytics platform Nansen. Meanwhile, they said, the crypto hedge fund Three Arrows Capital (3AC) was the victim of the contagion.
Celsius paused withdrawals, swaps, and transfers between accounts on June 12 citing "extreme" market conditions. Subsequently, the crypto lender started topping up collateral and repaying loans in order to maintain a healthy loan-to-value (LTV) ratio.
More specifically, Celsius’ LTV ratio stands at 1.56 on Aave (AAVE), meaning that prices need to drop more than 36% for the crypto lender to be in trouble. Likewise, on Compound (COMP), the ratio is at 1.39, which suggests prices need to drop more than 28% for Celsius to get liquidated.
The report also revealed that 3AC was likely a "victim" of the contagion. Here contagion refers to the spread of crises from one protocol (Terra) to others (like 3AC).
It’s looking like this may be the end of contagion concerns for this drop although all of these adjustments might not be enough to save many overextended companies should we see a further drop due to recession concerns. Due to this, I would highly recommend readers look into the platforms they use to hold their currency to confirm they aren’t at risk of contagion should another drop occur. Any platform can and will lock withdrawals should they need to & unfortunately you are stuck should they go bankrupt at that point.
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