Ethereum Sets A New High | Will Bitcoin’s Reversal Stick?

BITCOIN’S WILD RIDE CONTINUES

Bitcoin, after surging to $42,000 per bitcoin earlier this month, underwent a sharp correction this week. It briefly fell below $30,000 early Friday morning before climbing back above $32,000. As observed during previous downturns, bitcoin’s drop also led to reversals for many other leading crypto assets, including ethereum, Ripple's XRP, litecoin and cardano. That said, bitcoin remains up 10.76% for the year and 171% over the past six months.

There are multiple causes of this recent selloff, including critical comments from President Joe Biden’s Treasury Secretary nominee (see below), additional questions raised by analysts from JPMorgan about bitcoin, who said in a note on Thursday that rising mainstream adoption “raises correlations with cyclical assets, potentially converting cryptocurrencies from insurance to leverage,” and continued profit-taking across the world.

However, it was not all bad news for bitcoin, as institutional interest remains strong. MicroStrategy purchased another 314 bitcoin for $10 million, BlackRock filed documents with the Securities and Exchange Commission showing that it wants to include cash-settled Bitcoin futures as eligible investments for two of its funds, and leading crypto ETP provider Grayscale added $700 million in assets across its products for its biggest inflow day ever.

ETH SUPPLANTS ITS PREVIOUS ATH

While the crypto market struggled at the end of the week, it received a major jolt on Tuesday when ethereum topped its previous all-time high of $1,432 to reach $1,448. Ethereum’s huge rally, which has seen it climb almost 300% since bitcoin and other cryptocurrencies broke out in early October, is thought to be largely driven by the emerging decentralized finance (DeFi) market. Additional support came from the largely successful launch of the network’s transition to Eth 2.0, an upgraded version of the network that will dramatically improve its scalability and throughput.

However, ethereum’s peak was short-lived and it has since fallen back to $1,246. That said, it remains up 70% for the year and 194% over the past six months.

JANET YELLEN’s CRYPTO COMMENTS MISS THE MARK

The crypto community became alarmed on Tuesday when Secretary of the Treasury nominee Janet Yellen, speaking at a Senate Finance Committee hearing, stated that cryptocurrencies are “a particular concern” when it comes to criminal activity and terrorist financing. She continued, “I think many (cryptocurrencies) are used, at least in a transaction sense, mainly for illicit financing. And I think we really need to examine ways in which we can curtail their use, and make sure that anti-money laundering (sic) doesn't occur through those channels.”

However, this is a false narrative. The majority of cryptocurrency is not used for criminal activity. According to an excerpt from Chainalysis’ 2021 report, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume (roughly $21.4 billion worth of transfers). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% ($10.0 billion in transaction volume). In fact, according to the United Nations, it is estimated that between 2% and 5% of global GDP ($1.6 to $4 trillion) annually is connected with money laundering and illicit activity.

It is worth noting that in written testimony released on Wednesday, Yellen struck a more balanced tone, noting the “potential they have to improve the efficiency of the financial system.”

ELSEWHERE

Grayscale May Have Laid Groundwork for 5 More Potential Crypto Trusts [CoinDesk]

Tether is Fully Backed by Reserves, Says Deltec Deputy CEO [Decrypt]

GBTC’s Premium Has Fallen Below 5% From About 40% A Month Ago [The Block]

Follow us on Twitter & Facebook