Bitcoin on Track for Second Consecutive Monthly Decline; Ethereum’s Plunge Could Be a Death Knell for Altcoins

About a month ago, bitcoin was making a strong case that it should be considered “digital gold” in the face of economic and political uncertainty. Three consecutive weekly declines and the loss of major technical levels – all while gold has risen – has challenged that assertion.

The view that $10,000 bitcoin is the “new normal bottom” was also squashed earlier this week after the digital currency plunged below the five-figure level, setting the stage for a deeper reversal in the coming months.

Bitcoin’s sharp declines have ravaged the altcoin market. The Ethereum-bitcoin exchange rate, long considered a key proxy for altcoin demand, has plunged to more than two-year lows.

Bitcoin Extends Declines

The bitcoin price extended its slide this week, falling to its lowest level since mid-August and testing the lower limits of $9,000. Although BTC has been under pressure for much of August, it took a 7% drop in the span of minutes on Wednesday to push it into negative territory for the week.

The violent plunge happened hours before BitMEX’s perpetual futures contract was due to expire for the week. The decline wasn’t accompanied by a commensurate rise in trading volume, which suggests manipulation was at play. Bitcoin whales – oversized holders of the digital asset – have been known to rock the boat from time to time. Several of bitcoin’s reversals this year have been attributed to whales unloading big positions only to buy back again later. (On the flip side, whales have also bought large amounts of BTC forcing short-sellers to liquidate their positions.)

Read: Bitcoin Price Stabilizes After Epic Short-Squeeze

At the time of writing, the BTC/USD exchange rate was hovering just below $9,600 on Bitstamp.

BTC/USD. | Source: TradingView.

Altcoins Follow Bitcoin Lower

The altcoin death spiral intensified this week, with the majors testing new cycle lows following bitcoin’s rapid decline. Ethereum (ETH), Binance Coin (BNB), EOS (EOS) and Monero (XMR) were among the biggest decliners, falling at least 12%.

Altcoins have seen their market share erode significantly since the start of 2019. On Friday, they accounted for less than 31% of the overall cryptocurrency market. The balance of crypto holdings – 69.1% to be precise – is allocated to bitcoin.

Ethereum’s performance relative to bitcoin paints a clear picture of altcoins’ demise. The ETH/BTC exchange rate has plunged below 0.02 for the first time in nearly two-and-a-half years. For there to be any signs of life in the altcoin market, Ethereum must return above 0.03 BTC.

ETH/BTC. | Source: CoinMarketCap.

The so-called developer’s cryptocurrency hasn’t performed much better relative to the U.S. dollar. Ether bottomed near $167 on Thursday, its lowest in four months.

ETH/USD. | Source: CoinMarketCap.

Craig Wright Saga Unfolds

Craig Wright’s yearlong battle with the estate of David Kleinman ended on Tuesday when a judge ordered the fake Satoshi to forfeit half of his total bitcoin holdings held prior to 2014. The actual amount that Wright must hand over to Kleinman’s estate is 500,000 BTC, which is equivalent to just under $5 billion at today’s prices.

David Kleinman was a computer programmer who worked with Wright from 2009 until his death in 2013.

The court document deems the following to be facts:

“(1) Dr. Wright and David Kleinman entered into a 50/50 partnership to develop Bitcoin intellectual property and to mine bitcoin; (2) any Bitcoin-related intellectual property developed by Dr. Wright prior to David Kleiman’s death was property of the partnership, (3) all bitcoin mined by Dr. Wright prior to David Kleiman’s death (“the partnership’s bitcoin”) was property of the partnership when mined; and (4) Plaintiffs presently retain an ownership interest in the partnership’s bitcoin, and any assets traceable to them.”

Although the court ruling was welcomed by the cryptocurrency community, which has long grown tired of Wright’s antics, it raised concerns that Kleinman’s family would be forced to liquidate a large share of the new holdings to cover estate taxes. It’s not entirely clear whether the tax will be calculated using bitcoin’s price today or prior to 2014.

The Week Ahead

The cryptocurrency market has developed a strong bearish bias in recent weeks, a clear sign that altcoins are still looking to bitcoin for direction. Bitcoin has been in perpetual decline since reaching peak levels all the way back in late June. A series of lower highs gave rise to the latest round of selling pressure, albeit with a touch of manipulation from the whales (or BitMEX).

Although markets are still vulnerable to new lows, bitcoin’s peak-to-trough correction amounts to just over 31%. As Hacked previously reported, 30% corrections in bull markets are nothing new for crypto. In fact, they are to be expected.

So, while bitcoin is doing just fine if we zoom out to 2019, the same cannot be said for altcoins. Ethereum’s massive slump over the past two months offers compelling evidence that altcoin mania may be long gone.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. Charts via TradingView and CoinMarketCap.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi