Zug July 2nd 2019

Bitcoin bulls continued their parade and breached the psychologically important $10k level, possibly fueled by the Federal Reserve’s FOMC statement to leave target rates unchanged at 2.25-2.5% and “closely monitor” developments – a wording which signals potential rate cuts in the future.[i] Bitcoin price then continued its parabolic ascent towards the $14k level, during which records were set: On June 26, Bitcoin derivatives exchange BitMEX’s perpetual swap (its most liquid product), achieved a daily trade volume of over $13.5bn with open interest reaching $1bn.[ii]

After scratching $13.9k, price sharply reversed and dropped 14% in only 15 minutes, breaking the parabola. The drop was amplified by a cascade of liquidations of over $250m in long positions on the perpetual swap. Bitcoin found support at the $10.3k level, the lower end of the $10.3k-$11k range that has attracted trader interest on the way up. Bitcoin’s volatility (based on daily returns for the last 30 days) also rose sharply to 5.39%, its highest level since the beginning of the year.[iii] At the time of writing, Bitcoin is trading at $10.6k.

Bitcoin dominance, the largest cryptocurrency’s share of the total market cap of all cryptocurrencies, has reached pre-2018 crash levels, rising to over 65%. These levels were last seen in early December ’17, when Bitcoin traded around $17.5k. Seeing the strength of Bitcoin in comparison to small cap coins may also be indicative of increased institutional interest, since Bitcoin is the most liquid cryptocurrency and also the most accessible one through traditional exchanges. In fact, CME futures open interest increased by 630 contracts (5 BTC per contract) in the past week.[iv]

Facebook’s Libra Faces Regulatory Headwinds

In our last market update, we have reported[v] that Facebook is entering the cryptocurrency space – since then, the official Libra website and documentation were published, and several regulators voiced their concerns about the project. Shortly after publishing the details about Libra, U.S. regulators called for a “freeze” of the Libra project and requested congress hearings on July 16 (Senate Banking Committee) and July 17 (House Financial Services Committee).[vi] M. Carney, governor of the Bank of England, mentioned that Libra would immediately be “systemically relevant” if successful.[vii] Also, the central bank would keep an “open mind, but not an open door”. France has initiated the formation of a G7 task force that will investigate the role of central banks with respect to Libra, especially concerning topics such as anti-money laundering and consumer protection laws.[viii]

Meanwhile, several of Libra’s partners and alleged Founding Members of the Libra Association stated that they would “decide whether to join the association and make the payment after there is more clarity on how Libra will work”.[ix] Hence, it remains to be seen if Facebook can actually attract and get a full commitment (including a $10m payment to the Libra Reserve) of 100 Founding Members until their planned launch in Q1-2 of 2020.

Written by Dr. Raffael Huber, Research and Sandro Huwyler, Trade Desk of Bitcoin Suisse AG

[i] [19/6/2019]

[ii] [28/6/2019]

[iii] [01/07/2019]

[iv] [01/07/2019]

[v] [18/6/2019]

[vi] [01/07/2019]

[vii] [01/07/2019]

[viii] [01/07/2019]

[ix] [01/07/2019]