Interest rate markets may have biggest impact on bitcoin in near term, this asset manager says

Crypto in a snap

Major cryptocurrencies slid for another week and plunged on Friday amid broad sell-offs of risky assets, after a new variant of COVID-19 was detected in South Africa.

Bitcoin BTCUSD, +0.79% fell more than 7% on Friday, with a 1.1% loss for the past seven days, according to CoinDesk data. The cryptocurrency was recently trading at $54,460 early New York time. Ether ETHUSD, +1.39% plunged more than 9% on Friday, while it logged a 2.3% gain over the past seven days. Dogecoin DOGEUSD, +1.95% recorded a 9% loss over the past seven days, while Shiba Inu fell roughly 10% over the past seven days.

Crypto Metrics

Macro uncertainties  

Ben McMillan, founder and chief investment officer at crypto asset manager IDX Digital Assets, said that for the past few weeks, the firm has been “very cautious on crypto” and has been “repositioning portfolios more defensively,” as major cryptocurrencies saw higher volatility. 

“Bitcoin just hit all-time highs. So there’s always a little bit of a pause,” McMillan told MarketWatch in an interview. On Nov. 10, bitcoin notched a record high of $68,991, according to CoinDesk data. “As it tests all-time highs, you start to see market participants taking profits. That’s not unexpected,” according to McMillan.

Global macroeconomics uncertainty also adds to the recent selloff pressure, said McMillan. Although the narrative that bitcoin could be used as an inflation hedge has contributed to the cryptocurrency’s earlier bull run, bitcoin has recently started to demonstrate some sensitivity to interest rates, according to McMillan. 

“A good example is when you looked at the record high CPI numbers that came out a couple of weeks ago, what was interesting was that Bitcoin initially traded up on that news consistent with the idea of Bitcoin as an inflation hedge, but it actually sold off very quickly a few hours later as the rates market started trading up,” McMillan added. 

McMillan said he expects continued volatility through the year-end. “That doesn’t mean that bitcoin can’t hit all-time highs. It just means that we’re expecting there to be more weakness ahead in the immediate term,” McMillan said.  

Bitcoin leaving exchanges 

As of Wednesday, the amount of bitcoin held by exchanges fell to around 2.3 million, a more-than-three-year low, according to CryptoQuant. 

This sign is usually interpreted as bullish in the long term. “Waning supply on exchanges typically means that market participants are moving BTC into cold storage because they see incremental upside for the foreseeable future,” wrote a recent report by crypto exchange Kraken.

However, there are exceptions. Market participants may be “moving funds onto lending platforms, making a peer-to-peer sale, or tokenizing their BTC on other blockchains,” according to the report. 

India’s potential crypto ban 

According to the India parliament’s bulletin dated Tuesday, the government plans to introduce a bill, which seeks to build a framework for the creation of India’s official digital currency, in the parliament’s “Winter Session” starting Nov. 29. 

The bill also seeks to ban all private cryptocurrencies in India, but would allow “certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to the bulletin. 

John Kicklighter, chief strategist at research site DailyFX wrote to MarketWatch in an email that “the verbiage of the bill isn’t particularly clear, but the density of long-only speculative interests will naturally read into the risks associated with any regulation.” 

Mikkel Morch, executive director at crypto hedge fund ARK36 wrote that “what’s interesting is that the situation does underscore the fact that the adoption of cryptocurrencies around the globe has happened so fast that it has also given rise to a new set of challenges for governments and financial regulators.”

Crypto companies, funds

In crypto-related company news, shares of Coinbase COIN, -2.94%  went down 4% to $299.6 Friday morning. It was down 7% for the past five trading days. Michael Saylor’s MicroStrategy Inc.  MSFT, -2.44%  dropped 4.7% to $669 Friday morning. It was down 8% over the past five days.

Mining company Riot Blockchain Inc.  RIOT, -5.62%  shares fell 4.4% to $35, while it gained 4.3% over the past five days. Shares of Marathon Digital Holdings Inc.  MARA, -6.09%  plunged 7.4% to $48.5, contributing to a 5.4% loss over the past five days. Another miner Ebang International Holdings Inc.  EBON, -9.52%  dived 9.8% to $1.51, with a 15.8% loss over the past five days.

Overstock.com Inc.  OSTK, -0.67%  went up 1.6% to $94.3, while it was down 11.5% over the past five days.

Square Inc.  SQ, -1.66%’s shares inched down 1.4% to $213.1, with a 7.3% loss for the past five days. Tesla Inc.’s  TSLA, -3.05%  shares went down 2.8% to $1,086, with a 1.07% loss over the past five days.

PayPal Holdings Inc.  PYPL, -0.49%  inched up 1.3% to $191, while it recorded a 4.8% loss over the past five days, while NVIDIA Corp. NVDA, -3.58%  went down 1.62% to $321.5, with a 1.38% gain over the past five days.

Advanced Micro Devices Inc.  AMD, -1.89% went down 0.53% to $157 and notched a 1.8% return over the past five days.

In the fund space, ProShares Bitcoin Strategy ETF  BITO, -6.13%  went down 5% to $34.7 Friday morning, while Valkyrie Bitcoin Strategy ETF  BTF, -5.80%  declined 5.2% to $21.4. VanEck Bitcoin Strategy ETF XBTF, -5.96% dropped 5.5% to $54.2.

Grayscale Bitcoin Trust GBTC, -4.50%  went down 4.6% to $44.3, with a 4.2% loss over the past five days.

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