Will GBTC be the next black swan for Bitcoin price? - 5 points you should know about BTC this week

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Written by

Kevin Lopez
Published on

November 21, 2022

Key points: 

  • The sentiment suggests that everyone is preparing for the worst. Case in point, Genesis Trading stopped payments to its crypto lending unit last week.
  • Targets this winter could be as low as $10,000 or less. On the daily chart Bollinger Bands expanding, with the price testing the lower band - suggesting lower levels amid increased volatility.
  • The Producer Price Index (PPI) data fell short of expectations, and even fell, instead of rising. Meanwhile, the dollar continues to struggle as past 20-year highs remain elusive.
  • The Bitcoin network difficulty increased by 0.51%, a new all-time high. Data from CryptoQuant shows that Miner Proposition Index (MPI) is returning to normal after the FTX crash.
  • Twitter crypto analytics suggest that we are entering a bottom phase. 

Bitcoin started the new week, repeating November 2020 after its lowest weekly close in two years.

Like the rest of the cryptocurrency industry, the largest cryptocurrency remains highly vulnerable to downside risks as it continues to grapple with the fallout from the implosion of the FTX exchange.

As November progresses, everyone is talking about contagion - and like Terra LUNA's debacle earlier this year, there are fears that new victims of FTX's massive liquidity vortex will continue to emerge.

The stakes are high - the initial shock may have passed, but the consequences are just beginning to be felt.

These include issues beyond financial damage as lawmakers try to deal with FTX and refocus on urgent Bitcoin and cryptocurrency regulation.

So it’s no surprise that crypto asset price action has been weak at best — and many believe the worst is yet to come.

Btcman examines some of the key factors to consider in this week's BTC price action.

FTX sprawls to become GBTC

With the fate of FTX executive and former CEO Sam Bankman-Fried under a cloud, commentators and cryptocurrency investors alike are wondering what's next for the contagion.

This sentiment suggests that everyone is preparing for the worst. Case in point, Genesis Trading, a unit of the Digital Currency Group (DCG) group, stopped payments to its crypto lending unit last week.

This sparked a flurry of rumors not only about Genesis' solvency but also about DCG's future. Reassurances from executives have failed to stop the narrative, which also centers on Grayscale Bitcoin Trust (GBTC), Bitcoin’s largest institutional investment vehicle.

So over the weekend, the growing debate over GBTC turned into a full-blown panic about the financial recovery.

As Btcman reported, the situation was further complicated by Grayscale’s refusal to provide address details to prove its BTC reserves, ostensibly for security reasons.

Concerns were fueled by suspicions that DCG owed Genesis more than $1 billion.

Meanwhile, some well-known investors have increased their holdings of GBTC in recent weeks.

"Is the next black swan GBTC just around the corner?" Trading resource Stockmoney Lizards was therefore questioned on Twitter.

“GBTC holds ~648k BTC.Grayscale discount off to a record 43% as FTX spreads great uncertainty.Lots of hysteria in the market and everyone is looking for the 10k Bitcoin reason. Keep calm, bear markets end in the winter!”

Other points of contention center on GBTC’s discount to Bitcoin’s spot price, which is now approaching 50% for the first time.

GBTC premium vs. asset holdings vs. BTC/USD chart. Source: Coinglass

GBTC premium vs. asset holdings vs. BTC/USD chart. Source: Coinglass

Former CEO of exchange BitMEX Arthur Hayes even flagged a July blog post claiming that DCG worked with defunct trading firm Three Arrows Capital (3AC) to “extract value from the GBTC premium.”

Coinbase is a potential target for Cane Island Alternative Advisors investment manager Timothy Peterson after vouching for Grayscale’s legitimacy last week.

“For anyone questioning $GBTC Grayscale holdings, why not short $COIN @coinbase?” he ventured on Twitter.

“They are the custodian & they would be the ones committing fraud. COIN is 10x the size of GBTC; stock would go to 0 and execs would go to prison. You would be wealthy and go on vacation.”

Meanwhile, BitGo CEO Mike Belshe firmly blamed the situation with GBTC and FTX on the U.S. regulator, the Securities and Exchange Commission (SEC).

“By failing to create an ETF for Bitcoin, the SEC has: - Allowed Grayscale -> GBTC trading to disrupt retail for 5+ years - Created a negative GBTC premium - Shut down most crypto trading outside US jurisdictions - let the FTX scam hit millions of Americans, it shouldn't have happened," he concluded as part of a Twitter discussion.

In the related developments of FTX, the hacked funds are circulating on the exchange, and tens of thousands of Ethers were converted into BTC this weekend.

Digital Downside Risk

Given the current circumstances, Bitcoin is understandably caught between a rock and a hard place.

Since the FTX explosion, BTC/USD has not paused, testing levels not seen in two years and sparking growing calls for further capitulation.

The question for traders and analysts is how far this capitulation can go.

As reported, targets this winter include $13,500, $12,000, and even as low as $10,000 or less.

The recent weekly close did not improve the situation, according to data from TradingView, which was Bitcoin's weakest since November 2020 at around $16,250 before fresh losses emerged.

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

"Volume down. Bollinger Bands are squeezing on many time frames. Some things have to give way," analyst Matthew Hyland warned before closing.

A look at volatility on the daily chart shows Bollinger Bands expanding, with the price testing the lower band at the time of writing on November 21 - suggesting lower levels amid increased volatility.

BTC/USD 1-day candle chart (Bitstamp) with Bollinger bands. Source: TradingView

BTC/USD 1-day candle chart (Bitstamp) with Bollinger bands. Source: TradingView

Near-term upside targets, however, include a return to the near-term CME Bitcoin futures gap of around $16,500.

Even though BTC/USD is trading below $16,000, his colleague and analyst Crypto Tony also called for caution on the bearish sentiment on BTC/USD.

"Before I get too excited, I'd like a close below the low of the range," he told Twitter followers that day.

“Right now we are still in the same boat as the last few days actually .... Patience.”

BTC/USD annotated chart. Source: Crypto Tony/ Twitter

BTC/USD annotated chart. Source: Crypto Tony/ Twitter

Meanwhile, Aksel Kibar has taken a more conservative stance, warning that history could repeat itself for bitcoin, repeating losses from earlier this year.

He described one of two charts uploaded to Twitter that day as "a reminder of the recent consolidation and its potential to become a bearish continuation chart pattern."

Kibar has previously argued that "the longer the price stays below $18,000, the better the chances of a return to $13,000".

BTC/USD annotated chart. Source: Aksel Kibar/ Twitter

BTC/USD annotated chart. Source: Aksel Kibar/ Twitter

Inflation drops more than Bitcoin

While inflation has been a major topic of discussion for everyone involved in risk assets in 2022, when it comes to cryptocurrencies, the issue has taken a backseat.

FTX and its contagion are putting more pressure on price action in the short term than this year’s macro triggers, but behind the scenes, global economic conditions are providing interesting signals.

Inflation has eased in the United States, but new data in Europe suggest Germany, the Eurozone's largest economy, is following suit.

The Producer Price Index (PPI) data released on November 21 fell short of expectations, and even fell, instead of rising.

"Producer prices fell by 4.2% in October 2022 compared to September 2022. This was the first month-on-month decline since May 2020 (-0.4% compared to April 2020)," the official press release in the manuscript.

German Producer Price Index (PPI) chart. Source: Federal Statistical Office (Destatis)

German Producer Price Index (PPI) chart. Source: Federal Statistical Office (Destatis)

At the same time, when the inflation situation improves significantly, the possibility of recovery of risky assets also increases. Meanwhile, the dollar continues to struggle as past 20-year highs remain elusive.

For popular analytics resource Game of Trades, the U.S. dollar index (DXY) is "game over," with the index breaking above its 100-day moving average for the first time since April 2021.

U.S. dollar index (DXY) 1-day candle chart with 100 MA. Source: TradingView

U.S. dollar index (DXY) 1-day candle chart with 100 MA. Source: TradingView

New difficulty level hits all-time high thanks to cool miner sale

In the current climate, even all-time highs rather than lows will struggle to catch up with Bitcoin supporters.

Behind the scenes, Bitcoin has been busy beefing up its network security — but concerns about the numbers remain.

During the last automatic rebalance on November 20, the Bitcoin network difficulty increased by 0.51%, a new all-time high.

Bitcoin network fundamentals overview (screenshot). Source: BTC.com

Bitcoin network fundamentals overview (screenshot). Source: BTC.com

Mining difficulty reflects the competition among miners. Currently, the metric is rising despite falling BTC price action, again suggesting that some companies are deploying more computing power to the network and can ignore declining profit margins.

However, some warn that for those less resilient, "surrender" may follow. Colin Talks Crypto reacts to New Difficulty High, calling It a "Perfect Storm" of Miner Turmoil.

"Only the strongest can survive this extreme pressure," he added.

Still, miners have sold less in the past few days compared to the one-year average, suggesting that the urgent need to deplete reserves may be less.

Data from the on-chain analytics platform CryptoQuant shows that Miner Proposition Index (MPI) is returning to normal after the FTX crash.

Bitcoin Miner Position Index (MPI) chart. Source: CryptoQuant

Bitcoin Miner Position Index (MPI) chart. Source: CryptoQuant

The bottoming time

Those who were knocked out in the last crypto bear market are in for a long, long return to glory.

As revealed by the popular Twitter account Mustache, BTC/USD is now a decent number of weeks away from its recent all-time high to set a new macro low.

30 months later, the time of this event has passed relative to 2018 and 2014.

BTC/USD annotated chart. Source: Moustache/ Twitter

BTC/USD annotated chart. Source: Moustache/ Twitter

Mustache also flagged Bitcoin’s MVRV Z-Score metric, which is now near levels synonymous with any macro bottom.

“Everyone wants to know where the bottom for Bitcoin might be. The MVRV Z-score has historically been proven to be very accurate to answer that question,” he wrote alongside a screenshot of the MVRV-Z score table.

“Whenever the Z-Score fell out of the green channel, the bottom was in for $BTC. We're very close.”

BTC/USD MVRV-Z Score annotated chart. Source: Moustache/ Twitter

BTC/USD MVRV-Z Score annotated chart. Source: Moustache/ Twitter

Meanwhile, compared to four years ago when BTC/USD bottomed at $3,100 in December 2018, his colleague Bleeding Crypto said the price action is still just beginning the bottoming process.

“Did you know that when we started capitulating in 2018, it took us 5 weeks to finally hit bottom?” he revealed.

“Then it took 4 month of BORING PA before we saw the first God candle. We barely started week 2 today. This is a marathon, not a sprint. Get comfortable, it’ll be a while.”

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

 

 

 

 


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