Weekly Forecast: False Hope and Misinformation – How a Non-Issue Triggered a $50 Billion Selloff of Cryptocurrencies
The crypto-market selloff intensified over the weekend, as the search for an elusive bottom continued following an SEC decision to postpone a highly touted bitcoin exchange-traded fund. But let’s not mince words: the cryptocurrency market tanked on a non-issue that was fully expected by those of us in the know. With rationality out the window, the next seven days will provide a critical test for a market struggling with liquidity shortfalls, false hope and misinformation.
Why Is the Market Tanking?
As Hacked previously reported, cryptocurrencies have been in a state of disarray ever since the U.S. Securities and Exchange Commission decided to postpone their ruling on the VanEck SolidX Bitcoin ETF. Over a stretch of five days, the cryptocurrency market capitalization fell by roughly $50 billion to $207 billion, the lowest in a year.
But the SEC’s announcement was hardly a surprise to anyone who’s been following the regulatory debate in Washington. In fact, a cursory glance at news headlines would have clearly revealed that a delay was not only possible, but likely. What’s more, postponement is hardly unique for the SEC. Just two weeks earlier, the agency announced it would delay its ruling on five proposed bitcoin ETFs submitted by Direxion Investments.
Postponement of the VanEck/SolidX proposal clearly wasn’t priced into the market, which partly explains the massive reversal we’ve witnessed over the past six days. This type of herd mentality is especially dangerous for cryptocurrency traders given the market’s liquidity challenges.
Astonishingly, all these developments conceal what’s really important from the perspective of mass adoption – namely, the world’s largest stock exchange operator is partnering with Corporate America’s biggest companies to bring cryptocurrencies to mainstream investors and consumers. The launch of Bakkt, a startup company created by Intercontinental Exchange (ICE) to spearhead crypto adoption, has flown under the radar amid the ETF debate.
Bitcoin’s status as crypto-market bellwether has strengthened over the past three months as investors exited more speculative altcoin bets. This came to a head over the weekend as bitcoin’s dominance rate crossed 50% for the first time since the height of its bull market in December.
As bitcoin’s market share grows, investors can expect it to exert a stronger pull on the broader cryptocurrency market. Although bitcoin has been the center of the latest market collapse, it has triggered even bigger percentage losses for altcoins and tokens.
Case in point: bitcoin is down 10% over the past seven days. Ethereum has declined more than 20% over the same period, XRP by 30% and IOTA by a staggering 40%.
At the time of writing, the bitcoin price had gained 2.2% to trade at $6,340, which is well above the two major inflection points Hacked identified on Friday. Bitcoin’s defense of the psychologically and materially significant $6,000 level could dictate whether the broader market plumbs new yearly lows or generates a rally in the opposite direction.
The Week Ahead
In terms of closely watched calendar events, the following headlines could influence both crypto and conventional markets this week.
There are no significant events scheduled on Monday.
Investors keeping tabs on global data flows can expect the following releases on Tuesday: China retail sales, industrial production and fixed asset investment; Germany Q2 GDP; Eurozone Q2 GDP.
The Blockchain Futurist Conference in Toronto will begin on Wednesday and run until Thursday. Headline speakers include Ethereum co-founder Charles Hoskinson and Dash Core CEO Ryan Taylor.
Cardano is also expected to deliver a special announcement on Wednesday, though details are still pending.
Meanwhile, the expiration of the CBOE XBT bitcoin futures contract will occur on Wednesday.
In conventional markets, U.S. data flows will make in the form of July retail sales and industrial production. The August edition of the New York Empire State Manufacturing Index is also expected.
Tron and Cardano are scheduled to hold community/developer meetups on Thursday. The Cardano event will take place in Krakow, Poland. Tron’s developer group will meet in San Francisco.
In economic data, reports on Eurozone trade, U.K. retail sales and U.S. housing starts will make their way through conventional markets on Thursday.
The European Commission will release final July Eurozone consumer inflation data on Friday. The Canadian government will issue a similar release.
In crypto news, Bytecoin (BCN) will release its public testnet on Friday.
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.