Good morning, and welcome to First Mover. I’m Bradley Keoun, here to take you through the latest in crypto markets, news and insights. (Lyllah Ledesma is off.)
- Price point: Bitcoin was fluctuating at around $29,700 after a report showing U.S. jobs growth slowed in May.
- Market Moves: Crypto winter might really have actually, genuinely, truly now arrived.
Price point
Bitcoin (BTC) was struggling to find direction Friday after a U.S. government report showed that the pace of jobs growth slowed in May—potentially a sign that the Federal Reserve’s recent moves to cool the economy might be starting to have an impact.
As of press time, the largest cryptocurrency was changing hands at around $29,500, down 1.7% over the past 24 hours.
Crypto traders and analysts have been monitoring the Fed’s actions because many see the U.S. central bank’s $4 trillion-plus of money-printing over the past couple years as having stimulated prices for risky assets. Now that the Fed and President Joe Biden are pledging to tamp down inflation that has been at its fastest in four decades, prices for Bitcoin and stocks have come under severe downward pressure.
In traditional markets, European indexes were mixed, and U.S. stock futures were lower on Friday. Gold was down 0.5% to $1,860 an ounce.
According to the U.S. Bureau of Labor Statistics, employers added 390,000 jobs in May—a modest slowdown from April’s 436,000 gain, but above economists’ expectations of 325,000.
According to MarketWatch, gold prices were lower after the report that job growth was faster than expected. Analysts say gold will struggle as long as the U.S. dollar is strong in foreign-exchange markets, which is theoretically the case when the Fed is raising interest rates.
Market moves
Crypto winter might have arrived
As Bitcoin’s price has steadily ticked down—the largest cryptocurrency just completed a record nine-week losing streak—analysts in digital-asset markets have wondered whether a “crypto winter” has arrived.
The term harkens back to the 2018 cold spell when bitcoin’s price fell 73% that year alone, accompanied by a crash in prices for tokens recently minted at the top of the market through “initial coin offerings” or ICOs. Cryptocurrency companies slashed jobs, Bitcoin miners mothballed new projects, and breathless headlines vanished from the mainstream press.
After this year’s 35% price plunge (so far), signs are now emerging that it might again be time to hunker down.
Recent cost-cutting measures by the Coinbase and Gemini exchanges show how seriously industry heavyweights are taking this pullback.
Riot Blockchain, one of the world’s largest publicly traded Bitcoin miners, unloaded more than half the Bitcoin it mined in May, CoinDesk’s Aoyon Ashraf reported Thursday. As the price of Bitcoin falls, more miners are powering off or selling their holdings to fund operating budgets; high energy prices are squeezing profits from the cost side.
“The impact has been felt across the space. Nothing has been spared from this drawdown,” trading firm QCP Capital wrote Friday in a note to subscribers on Telegram.
QCP ran the math on some of the key comparisons between the current market and 2018. Below are some of the key highlights. Brace yourself.
- “For BTC and ETH, if we match the 2017 drawdowns of 85% and 95% respectively, we will be looking at levels of $10,000 for BTC and $250 for ETH.”
- “While we think this is unlikely, the deep negative skew in the vol markets is reflecting some fear of this happening.”
- “In 2017, it took roughly 1 year to find the bottom for BTC and ETH. We are potentially still some time away from the absolute bottom.”
According to QCP, a big driver of the pullback has been the withdrawal of stimulus liquidity from the Federal Reserve and other central banks. Some of the riskiest tokens might have been the biggest beneficiaries of the money printing-fueled central bank balance sheet expansions.
“DeFi (decentralized finance) and meme coins have had the largest drawdowns,” QCP wrote. “When the easy money dries up, coins with poorest utility and highest multiples suffer the most.”
When does the cycle turn? In the topsy-turvy logic of financial markets, where the Federal Reserve serves as both a countervailing economic force and the 800-pound gorilla, that might happen when the data starts to look really ugly.
“We are now therefore entering into a ‘bad news is good news’ phase with regard to growth and employment data,” QCP wrote. “The market would trade positive on negative news as that would reduce Fed hawkishness.”
