US Market Crash Expected as Household Income Explodes, Will Millennials Flock to Bitcoin?

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For the first time in history, US household wealth has surged above the $100 trillion mark, fueled by the rise in the value of stocks and properties. However, analysts say the unsustainable growth in household wealth could cause a crash, which may lead millennials to flock to Bitcoin.

In September, US household wealth reached $100 trillion, and ostensibly it seems like a positive development for US markets. But, in comparison to the stagnation in actual US household income, it is quite evident that the rapid growth rate of US household wealth cannot be sustained in the long-term.

Speaking to Business Insider, AJ Bell investment director Russ Mould stated:

“Household net worth cannot sustainably grow this much faster than incomes. Assets have been bid up and at some stage there has to be chance that they correct, just as happened in 2000 and 2007.”

Bubble-Like Behavior

According to Mould, the US stock market experiencing one of the strongest bull markets in history and the real estate market continuing to increase in value led to an abrupt increase in household wealth. However, if household wealth cannot be backed by stable income, then the market will be vulnerable to a major correction.

“The difference is likely to be accounted for by the surge in the value of financial and other assets — equities, bonds, property and rankly everything from vintage cars to art to wine to baseball cards. And this is one warning that at some stage another collapse in financial markets will sweep around the globe,” Mould added.

Bitcoin Housing bubble crash

Nouriel Roubini, a widely recognized economist and professor at Stern School, also recently called for a financial crisis in the US market by 2020, explaining that the market has been demonstrating bubble-like behaviors over the past year.

With the discrepancy between US household wealth and income growing exponentially and global debt rising to $250 trillion, Mould emphasized that the US market is due for a correction, whether that will lead to a minor correction or a financial crisis as Roubini predicted remains uncertain.

Viability of Bitcoin as an Investment

Bitcoin, like gold, is often considered as a store of value with no correlation to the broader financial market. It moves independently of traditional assets and commodities, which allows Bitcoin to operate as a reliable store of value in times of uncertainty and market volatility.

While there exists no correlation between Bitcoin and the broader financial market, Matt Hougan, vice president of research and development at Bitwise Asset Management, told Bloomberg in an interview that the decline of the global market does not guarantee a bull market for crypto.

“Non-correlation is not the same as inverse correlation so there’s no guarantee that when the market goes down crypto will go up. Over the long term, we think the fundamental drivers of crypto are different from the fundamental driver of equities and other assets, and we would expect the low correlation to persist,” Hougan said.

Still, considering the increasing demand for Bitcoin from millennials, with surveys finding that over one third of millennials are planning to invest in cryptocurrency within the next few years and 80 percent of American millennials already aware of Bitcoin, it is highly likely that if a financial crisis occurs in the near future as experts predict, Bitcoin will emerge as a viable store of value alongside gold.

Bitcoin bull Tim Draper has predicted that the market capitalization of cryptocurrencies will increase by four hundred times in the coming one and a half decades.

Equating the current state of the crypto market to the early days of the internet, Draper, however, warned that the prices of bitcoin and other cryptocurrencies will first have to drop before rising. The billionaire tech investor was addressing a DEALSTREETASIA-sponsored private equity and venture capital summit in Singapore via video link.

“The internet started in the same way, it came in big waves and then it kind of came crashing down, and then the next wave comes concentrated but much bigger, and I suspect the same thing will go on here,” said Draper.

High Ignorance Levels

According to Deal Street Asia, Draper also stated that the reason why the price of bitcoin and other cryptocurrencies had fallen drastically since the record highs reached last year was due to ignorance. As people get accustomed to them, according to Draper, various billion dollar industries across the globe stand to be transformed. There will, however, be one big difference between the disruption caused by the internet and the one expected to be brought about by blockchain technology and cryptocurrencies:

“The internet went after industries that were $10-100 billion dollar markets, cryptocurrency will go after trillion dollar markets – these are finance, healthcare and insurance, banking and investment banking, and governments.”

Perennial Bull

This was not Draper’s first time to claim that cryptocurrencies and the blockchain technology possess more revolutionary potential than the internet. Earlier in the year, Californian stated that this transformative potential would be bigger than the industrial revolution, the Renaissance and the Iron Age. In March Draper also stated that fiat currencies will have been wiped out in half a decade and only cryptocurrencies will be in use.

Additionally, this is not the first time that Draper is making bold declarations regarding bitcoin and other cryptocurrencies. Five months ago, Draper predicted that the price of bitcoin would reach US$250,000 by 2022. In 2015 the venture capitalist projected that the price of the flagship cryptocurrency would reach US$10,000 by the close of 2017, a prediction that came to pass.

To his credit, Draper has backed his bullish views with cold hard cash. At an auction in 2014, for instance, he paid US$18 million for 30,000 bitcoins which had been confiscated by the U.S. Marshalls. At current market prices that translates to a profit of more than $170 million.

Another of the world’s largest investment banks is quietly building a product that will allow its clients to trade bitcoin, at least indirectly.

Citing a person familiar with the matter, Bloomberg reports that Morgan Stanley, the sixth-largest bank in the U.S. by assets, is creating a proprietary derivatives product that will give traders “synthetic exposure” to the price of bitcoin.

From the report:

“The U.S. bank will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, said the person, who asked not to be identified because the information is private. Investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction, the person said.”

The report further indicated that Morgan Stanley, whose CEO — James Gorman — said earlier this year that the firm won’t let customers trade cryptocurrency directly through the bank, is “technically prepared” to begin offering these bitcoin swaps, pending the completion of an internal approval process and demand from institutional investors.

Morgan Stanley had poached Credit Suisse’s “bitcoin expert,” Andrew Peel, to head its new crypto division.

The bank joins a growing number of major financial institutions that are said to be evaluating how best to integrate cryptocurrencies into their institutional product lines. Both Goldman Sachs and Citigroup, the fourth- and fifth-largest U.S. banks, respectively, plan to offer bitcoin derivatives products to their clients. JPMorgan has reportedly also begun exploring ways to help its clients invest in cryptocurrency, despite the fact that CEO Jamie Dimon has been one of bitcoin’s most vocal critics.

Meanwhile, Intercontinental Exchange (ICE), the operator of the world’s largest stock exchange, will soon launch the first physically-delivered bitcoin futures product, meaning that contracts will be settled in actual BTC rather than cash (as is the case with the bitcoin futures products currently available on Chicago-based exchanges CME and CBOE).

The cryptocurrency market crossed an unwelcome milestone on Wednesday, as it not only fell to a year-to-date low but also surpassed the Nasdaq Composite Index’s 78 percent peak-to-trough decline in the throes of the dotcom bubble that kicked off the new millennium.

Cryptocurrency Decline Now Worse Than Dotcom Bubble

Following a fresh rout this week, the cryptocurrency market cap — the combined nominal values of all coins and tokens in circulation — is now valued at just $186.8 billion, down a tech bubble-style 78 percent from the $835.7 billion all-time high its set on just eight months ago, on Jan. 7.

cryptocurrency
Source: CoinMarketCap

The crash is even more pronounced when viewed without bitcoin‘s stabilizing effects. Since peaking above $550 billion in early January, the altcoin market cap has declined approximately 85 percent and is now valued at $78.4 billion. For reference, ripple (XRP), the third-largest cryptocurrency, was once nominally valued at $145 billion.

cryptocurrency altcoin market cap
Source: CoinMarketCap

Remarkably, the altcoin market cap is valued lower today than it was one year ago, when, even after the uncertainty surrounding China’s ban on cryptocurrency trading and initial coin offerings (ICOs), altcoins collectively traded above $80 billion on Sept. 12, 2017.

Bitcoin Dominance Hits 9-Month High as Altcoins Crash

The rout is perhaps even starker when viewed in its individual components. Thirteen of the 15 most valuable cryptocurrencies by market cap have declined at least 78 percent from their all-time highs, according to data from OnChainFX.

cryptocurrency prices
Source: OnChainFX

Six, meanwhile, have declined at least 90 percent, including XRP (93 percent), bitcoin cash (90 percent), cardano (95 percent), IOTA (91 percent), tron (94 percent), and NEO (92 percent).

Bitcoin, of course, has not been immune to the decline. Since peaking near $20,000, the flagship cryptocurrency has taken a 69 percent hit and is now testing whether support will hold at $6,000.

Even so, bitcoin’s position within the cryptocurrency market itself has seldom been stronger, at least since the beginning of the ICO boom, which has now swelled the number of cryptocurrencies to nearly 2,000.

bitcoin dominance index
Source: CoinMarketCap

Bitcoin dominance now stands at a commanding 58 percent, its highest point since Dec. 13, 2017. That’s a notable about-face since January when bitcoin briefly accounted for less than one-third of the total market cap.

Indeed, it’s been a long time since anyone has mentioned the “Flippening,” and Roger Ver’s May prediction that ethereum would surpass bitcoin in 2018 appears increasingly comical.

Bitcoin, it seems, is still the king.

The Dotcom Bubble’s Silver Lining

Often lost in the dotcom bubble comparison is that, though many companies went bust, tech stocks as an asset class eventually came back with a vengeance, and the Nasdaq Composite Index now stands far above its dotcom bubble peak.

Nasdaq composite index chart
Nasdaq Composite Index | Source: Yahoo Finance

There’s no guarantee that the cryptocurrency market’s trial-by-fire will produce similar results, but if it is truly analogous to the dotcom bubble, the real question isn’t when the market will crash to zero, it’s “Which cryptocurrency is Amazon, and which is Pets.com?”

Over the past two days, the valuation of the cryptocurrency market has plunged to $201 billion as Bitcoin lost 13 percent, moving closer to its yearly low at $192 billion.

Since Sept. 6 when the price of Bitcoin dropped by more than 10 percent within a one-hour period, the cryptocurrency market has been on a continuous decline. Tokens bled out more intensely than they previously did in April and June, losing out 10 to 30 percent against Bitcoin.

Cointelegraph interviewed ThinkMarkets chief market analyst and former Bank of America trader Naeem Aslam, eToro senior market analyst Mati Greenspan, and well recognized cryptocurrency technical analyst Uzi, delving into the recent drop of Bitcoin and the rest of the cryptocurrency market.

$40 billion drop: One of the biggest daily decline in recent years

On Sept. 6, the cryptocurrency market lost nearly $40 billion from its valuation in less than 24 hours, demonstrating one of the steepest declines in the past three years.

In mid August, the cryptocurrency market dropped to its yearly low at $192 billion, but it took seven days from Aug. 7 to Aug. 14 to record such a large drop in valuation.

Prior to Wednesday, throughout the month of August, Bitcoin showed its highest level of stability since June of 2017, as researchers at Diar noted. From Aug. 8 to Aug. 26, the price of Bitcoin remained relatively stable in the $6,000 region, before initiating an overdue corrective rally above the $7,000 resistance level.

Source: CoinMarketCap.com

But, a rushed rally from the $7,000 mark to $7,400 within a four day period led sell pressure to build up, allowing bears in the cryptocurrency exchange market to take over, leading Bitcoin to fall by a large margin.

In late August, ShapeShift CEO Erik Voorhees said that the bear market is not over yet, but the low price range of major cryptocurrencies present a viable opportunity for new investors to come into the market.

The daily chart of Bitcoin demonstrates four similar movements since February. In the past six months, Bitcoin has risen to $10,000, fell to $6,000, recovered to $10,000, and tested the $6,000 resistance level on four occasions.

In February, Bitcoin surged to $11,000 but fell back down to $6,000. In April, Bitcoin rose to $10,000 and dropped to $6,000. In July, Bitcoin rallied to $8,500, only to test the $6,000 resistance level a month later. In September, the same pattern occurs, with each peak on the upside eventually declining $6,000.

Caption: One-day Bitcoin price chart from Cryptowat.ch

If Bitcoin recovers from the $6,000 support level, the next short-term rally could send Bitcoin to $7,000, which may fall back to the $6,000 region. But, if the dominant cryptocurrency can successfully bottom out in the $6,000 region, a possibility for a proper mid-term rally with newly found momentum could emerge.

Factors behind the drop

ThinkMarkets chief market analyst Naeem Aslam said that speculators have unnecessarily intensified the downtrend of Bitcoin by overselling Bitcoin in the global exchange market.

Aslam emphasized that the downward trend of Bitcoin has not changed since December of 2017, when the cryptocurrency market achieved a $900 billion valuation and initiated a rapid decline:

“Speculators have gone crazy and they are trying to squeeze as much blood out of this trade as they can. Bitcoin hasn’t changed what it was since last December, so what is the panic?”

Aslam added that it is difficult to pinpoint specific factors that have led the price of Bitcoin to drop substantially in recent months.

Analysts and investors in the cryptocurrency market and the broader financial market often attempt to find correlation in cryptocurrency price movements to developments in the cryptocurrency and blockchain sector.

However, correlation is not equivalent to causation, and because an event occurs at a certain time in which cryptocurrency prices fall or surge by a large margin, it does not necessarily mean that the event triggered a big movement in the cryptocurrency market.

TABB Group, an international research company, reported in July that the over-the-counter (OTC) Bitcoin is at least two to three times larger than the cryptocurrency exchange market.

Under the assumption that the OTC market is in fact two to three times bigger than the exchange market of crypto, developments in the cryptocurrency sector should have minimal impact on the price movements of cryptocurrencies — at least in the short-term — as the exchange market depends on the larger OTC market.

Reports have suggested that the correction of Bitcoin initiated on Wednesday was mainly caused by the delay in the decision of Goldman Sachs to launch a Bitcoin trading desk.

It is far-fetching to claim that the decision of a major investment bank to pivot from offering Bitcoin trading services — which may not appeal to its consumer base of institutions and large-scale corporations — to cryptocurrency custodian services led the price of Bitcoin to plunge within an hour.

Rather, it is more likely that the continuous build up of sell pressure on Bitcoin and other major cryptocurrencies since December of 2017 created instability and volatility in the market, causing the valuation of the market to drop.

Because the volume of Bitcoin remains relatively low in comparison to traditional assets and stores of value like gold, it is easier to trigger a domino effect across leading cryptocurrency exchanges.

Goldman Sachs delaying Bitcoin trading desk not relevant

On Sept. 6,  Goldman Sachs delayed the formal launch of its Bitcoin trading desk that is structured to facilitate rising demand from retail traders and individual investors.

Goldman Sachs spokesperson Michael DuVally told Reuters that the bank has not been able to reach consensus on the roadmap of its digital asset venture, citing various regulatory issues that currently exist in United States markets.

Hours after the statement of DuVally was released, Martin Chavez, the chief financial officer at Goldman Sachs, personally refuted reports that the institution is pivoting away from forming a Bitcoin trading desk operation, characterizing reports around it as “fake news.”

Aslam stated that it is premature to attribute the market’s struggle throughout this week to the delay in the launch of the Bitcoin trading desk operation by Goldman Sachs, as the bank has not closed its operation but merely delayed it to focus on a more urgent initiative that is cryptocurrency custodianship:

“Goldman has only delayed the process, they still have invested a lot of money and talent in this area. Investors must know it is very normal for banks to delay the IPO process if the market conditions are not favorable and over here we are talking about starting something completely new. Goldman has its fingers in many of the areas when it comes to Bitcoin, so stop thinking about it and focus on the price.”

Currently, the cryptocurrency market has a wide range of regulated exchanges in the likes of CoinbaseGemini, and UPbit that can be used by retail traders to invest in the cryptocurrency market. However, it lacks trusted custodianship and solutions that can break the barrier between cryptocurrencies and institutions.

It can be argued that Goldman Sachs is working on a more urgent issue that needs to be addressed in order to convince the broader financial market and governments to acknowledge cryptocurrencies as an emerging asset class.

As such, while the Goldman Sachs announcement contributed to the fall of the market, as cryptocurrency technical analyst Uzi told Cointelegraph, it is difficult to acknowledge Goldman Sachs as the sole cause for the correction. Bitcoin was already facing resistance around $7,400, the peak it achieved last week before sliding downwards:

“I feel the Goldman Sachs news about them rolling back plans on their crypto trading desk definitely helped trigger the Bitcoin drop, we were facing some tough resistance around $7,400 as well, but it’s not the biggest secret in the world that a massive amount of BTC shorts was added on Bitfinex days before this drop. 10K BTC in shorts, I believe — follow the money, as they say.”

Same bear trend since February

Mati Greenspan, a senior analyst at eToro, one of the largest multi-asset trading platforms in the global finance sector, with eight million active users, echoed the sentiment of Aslam by stating that the cryptocurrency market has been in a similar trend over the last few months, unable to break out of the $8,000 resistance level with solid volume and momentum:

“Volatility in the crypto markets has picked up over the last few days but is still pretty normal for this market. As far as Bitcoin’s price is concerned, the price has been in a rather stable range between $5,000 and $8,000 for the last few months and this hasn’t changed.”

Greenspan added that the volatility in the market can be attributed to the lack of demand from traders in the cryptocurrency sector, rather than specific events which analysts have pinpointed as the primary cause of the recent correction.

“Several possible reasons for the drop could be a few bad rumors that are circulating in the press, along with a stronger dollar and weakness in tech stocks. Ultimately though, it’s simply a matter of more supply and less demand in short-term trading.”

Technical analyst says Bitcoin market is liquid, fake volumes

Bitcoin is not considered a sufficiently liquid market, especially considering the fact that its exchange market is open to any individual investor and retail trader in the global market. While cryptocurrency market data providers estimate the daily volume of Bitcoin to be around $5 billion, studies have shown that most major cryptocurrency exchanges inflate their volumes through wash trading.

Alex Kruger, an economist and a cryptocurrency trader, stated earlier this week that Bithumb, South Korea’s second largest cryptocurrency exchange behind Kakao-run UPbit, said that more than $250 million worth of fake volume was created since Aug. 25.

He explained that one group of traders has been taking advantage of Bithumb’s 120 percent trading fee payback, which can generate about $90,000 in net income, with a $250 million daily trading volume.

“There currently are $250 million [in] fake volume traded at [the] Korean crypto exchange Bithumb, every day at 11 a.m. Korean Time, since Aug. 25. Bithumb offers 120 percent payback of trading fees as an airdrop. Trading fees are 0.15 percent taker. To collect the full KRW 1 billion rebate, a wash trader must thus trade KRW 278 billion. That is $250 million in daily fake volume. Notice how 31K Bitcoin are traded at exactly 11 a.m.”

Directly or indirectly, the method utilized by Bithumb has incentivized wash trading that bumps up the daily trading volume of the cryptocurrency exchange. The end outcome is a daily net income of $90,000 for a group of traders and a significant increase in the daily trading volume of Bithumb.

However, while the method leads to a win-win situation for both parties, it affects the global cryptocurrency exchange market in a negative way — as it reduces the authenticity of the international trading volume of cryptocurrencies.

Uzi stated that liquidity and fake volumes are two problems that cryptocurrency exchanges will have to address urgently, to ensure that investors in the market are protected and governments can recognize the sector as a legitimate industry:

“Solving the liquidity issue is one that needs to be tackled, and the issue of fake volume is something that needs to be addressed on a larger scale, because there are definitely questionable volumes on major exchanges.”

Uzi also noted that the Bitcoin market is still generally illiquid, given the lack of activity from institutions and large-scale hedge funds in the sector. He stated that the market is still not ready to support big demand from institutional investors, and most short or long contracts around Bitcoin filed through the U.S. futures market or cryptocurrency exchanges are done by individual investors.

“I have always felt the market for Bitcoin is still illiquid, and especially if you look at the altcoins market. I don’t feel any professional institution would take up a short position at that time on Bitcoin just out of the sheer volatility and the momentum it had testing a decent resistance, as well as the massive short being opened that was noticeable to most, it would be terrible risk management.”

Where the market goes next with Coinbase ETF variable

On Sept. 7, the world’s largest asset manager BlackRock, which oversees $6.317 trillion in assets, and Coinbase, the cryptocurrency sector’s biggest exchange and brokerage, are in talks to develop a cryptocurrency-based exchange-traded fund (ETF) to bolster market activity and facilitate growing demand from institutions for cryptocurrencies.

The entrance of VanEck and the Chicago Board Options Exchange (CBOE) has already increased the probability of the approval of the first Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC). The involvement of BlackRock will create more competition in the Bitcoin ETF space among U.S.-based regulated financial institutions, which may lead to more contenders filing with the SEC to improve the liquidity of the dominant cryptocurrency.

Variables like Bakkt, the CoinbaseBlackRock ETF and positive regulation-related developments in Japan and South Korea could contribute to the recovery of the cryptocurrency in the short-term, which previous corrections in 2012, 2014, and 2016 did not have.

Experts generally agree that the correction of the cryptocurrency market on Sept. 6 was caused by increasing sell pressure and a culmination of various developments, rather than a single event like the Goldman Sachs Bitcoin trading desk announcement having an immense impact on a global market.

Goldman Sachs Chief Financial Officer (CFO) Martin Chavez said that recent reports about the company abandoning its plans to open a cryptocurrency trading desk are “fake news,” CNBC reported September 6.

At the TechCrunch Disrupt Conference in San Francisco, Chavez reportedly said that reports about the company’s intentions for a crypto trading desk were unfounded:

“I never thought I would hear myself use this term but I really have to describe that news as fake news.”

Rumors that Goldman Sachs planned to establish a crypto-focused unit by the end of 2018 were initially reported by Bloomberg in December last year. However, on September 5, Business Insider reported that unnamed sources said the firm is scrapping crypto trading desk plans due to an unclear regulatory environment in the crypto industry. Chavez suggested that the excitement over a potential trading desk may have been premature. CNBC quotes him saying:

“When we talked about exploring digital assets […] it was going to be exploration that would be evolving over time. Maybe someone who was thinking about our activities here got very excited that we would be making markets as principal and physical Bitcoin, and as they got into it they realized part of the evolution but its not here yet.”

While Goldman has been clearing and providing liquidity for Bitcoin-linked futures contracts from the CBOE and CME, Chavez said there needs to be a reliable custody solution before the bank can proceed with physical Bitcoin (BTC). He stated:

“Physical bitcoin is something tremendously interesting, and tremendously challenging. From the perspective of custody, we don’t yet see an institutional-grade custodial solution for Bitcoin, we’re interested in having that exist and it’s a long road.”

Chavez noted that the company is working on a type of Bitcoin derivative, non-deliverable forwards, which are over the counter derivatives settled in U.S. dollars. The reference price is reportedly the Bitcoin/USD price established by a group of exchanges.

The price of Bitcoin and other digital currencies plummeted following the news about Goldman Sachs cancelling plans for a trading desk, with total market cap dropping by $12 billion in an hour. All of the top 100 coins experienced losses over the last 24 hours. BTC is trading around $6,479, having lost more than 6 percent on the day. At press time, total market capitalization is around $206 billion, according to Coinmarketcap.

A luxury car retailer based in Houston, Texas, has become the first Bentley, Bugatti and Rolls-Royce (but not Lamborghini) dealership in the United States to adopt cryptocurrency as means of payment.

Post Oak Motor Cars, which is owned by Houston Rockets billionaire, Tilman Fertitta, will now accept bitcoin and bitcoin cash thereby breaking new ground in a segment that caters to athletes, celebrities and other elite clients.

According to Fertitta, the decision to accept crypto is aimed at enhancing the experiences of customers.

“The rising of bitcoin sparked my interest. Being a premier luxury car dealer, I always want to offer my customers the very best buying experience and this partnership will allow anyone around the world to purchase our vehicles faster and easier,” Fertitta, said in a statement.

Partnering With Payments Processor

Bitcoin payments at Post Oak Motor Cars will be processed by Bitpay, whose chief commercial officer, Sonny Singh, has said most buyers prefer making big purchases using the largest cryptocurrency by market capitalization because it is convenient.

Fertitta, who acquired the NBA team Houston Rockets last year at a price of US$2.2 billion, has been a vocal proponent of bitcoin. At the beginning of the year, for instance, the billionaire who also hosts the Billion Dollar Buyer reality television show on CNBC declared that bitcoin would become a permanent feature as he predicted that his businesses spread across various sectors would start accepting cryptocurrencies as means of payment.

Insurance, the Missing Ingredient?

At the time as CCN reported Fertitta argued that the flagship cryptocurrency needed to be insured by the U.S. Federal Deposit Insurance Corporation in order to increase adoption.

“Go to the bank and try to withdraw a million dollars, they don’t have the money. It’s just paper. That’s all bitcoin is, is paper, but it’s not insured by the FDIC today. And until it’s insured, a lot of people are never going to buy it,” Fertitta was quoted as saying in a television interview.

Additionally, Fertitta likened the current state of cryptocurrencies to the early days of the internet. He, however, disputed claims that bitcoin would end up just like some internet firms which disappeared once the dotcom bubble burst.

A Lone Star State Thing?

Fertitta is not the first owner of an NBA team to gravitate towards cryptocurrencies. Earlier this year, Mark Cuban, the owner of Dallas Mavericks which is based in the state of Texas just like the Houston Rockets, indicated that the basketball team would start accepting bitcoin for the purchase of tickets during the 2018-2019 season which kicks off on October 16.

Yesterday, news spread that Goldman Sachs was sidelining plans of opening its cryptocurrency trading desk, a report coinciding with a market that took a sharp downward turn. The other day, market analysts saw someone take a 10,000 BTC short position while overall market sentiment has been positive.

Top analysts have been questioning why someone would take a $74,000,000 short position so quickly. It didn’t make sense unless he knew something that they didn’t. Only a few days after he started shorting there is some bearish news that comes out.

Others speculate that it could have been someone at Goldman Sachs themselves who took a $74m short position, waited 2 days, then announced they’re pulling out of Crypto.

These speculations have been just that, speculation. But with new AI technology keeping a watchful eye on the cryptocurrency market, there is evidence that points to a deliberate market manipulation, though by whom is still up for debate. 

What Happened:

When the crypto drop occurred in the morning for quite some time traders were looking for news behind such unusual -10% move across the board. Bitcoin, Ether, Litecoin and other tokens all declined on substantial volume.

Later in the day, the catalyst was found: Goldman decided to pause developments on its rumored crypto trading desk. Many comments around this news were regarding potential insider trading and the fact that institutional buyers would like to get into the crypto space at lower levels thus manipulating the markets.

Data scientists and market analysts from the RoninAI team, an AI-based crypto signals platform, took a closer look into the situation to see any red flag activities surrounding the drop. A number of indicators were pointing to some unusual behavior right before the drop. One of them is the social sentiment that sporadically increased minutes before the actual drop took place.

The three-day chart below indicates that such volatility in social sentiment takes place often and each time it happens AI algorithms react to it.

This chart doesn’t indicate bullish or bearish, rather a sudden influx of activity that is not authentic. To zoom in, let’s look into the last couple of hours preceding the event. It is very clear how social sentiment spiked above the 3 standard deviations from its mean levels. Historical data indicates these spikes are not typically naturally occurring events.

Three standard deviations event occur in about 0.3% of cases and every time it happens the RoninAI team studies the event to analyze potential market effects.

In the morning drop, the break above the 3 standard deviations took place about 10 to 15 minutes right before crypto declined to spur more questions as to whether such an event was, in fact, a market manipulation or not. The timing in addition to the unnaturalness of such a spike is strong indications.

Data scientists strongly believe this was either market manipulation or insider trading, but are reluctant to give a definitive answer for obvious reasons.

Regardless, the good news for the Bulls is that whoever is shorting 10k BTC has to buy back at some point and it’ll likely push the price up significantly. The bad news is WHEN do they start closing the short positions and buying back. There’s no real way to predict how this event will affect the market in the short and long term.

Major Wall Street investment bank, Goldman Sachs has finally made known its stance on opening a cryptocurrency trading desk.

The bank clarifies that such plans are not a priority for the foreseeable future, but rather it will be focusing its energy on a custody product for crypto that would better service large institutional clients.

Strong Rumours In The Past

This latest development as reported on Business Insider is contrary to popular expectations. There have been protracted rumors of significant progress within the company towards the establishment of a direct crypto trading desk over the past couple of months. The year 2017 recorded some significant activities that pointed towards the realization of such plans. Developments at the time included the bank’s hiring of seasoned cryptocurrency trader Justin Schmidt, a move that sparked even more suggestions across the crypto ecosystem in support of the speculation.

Despite the uncertainty at the time in line with the bank’s commitment towards launching a crypto trading desk, comments from within and other respected sources strongly suggested some relevant interest on the subject matter. This includes a comment from a spokeswoman from the bank that on how they are working to meet the demands of their clients who have expressed interest in cryptocurrencies.

Setting The Records Straight

However, in January 2018 some level of clarity about the developments in this area began to surface. Comments from the bank’s chief executive Lloyd Blankfein introduced some level of clarity to the ways and extent of their involvement in the cryptocurrency market. In an interview with CNBC, Blankfein explained that the role being played by his bank was simply to clear futures in bitcoin for some of their futures clients. He distanced the institution form a principle bitcoin business that involved them going long or short, thereby involved in market making.

The recent report on Business Insider is finally expected to lay to rest, at least for the time being the rumors and speculations on the role of Goldman Sachs in the crypto market. According to the report, the unclear nature of the regulatory framework surrounding cryptocurrencies is among the key reasons why the bank will not get directly involved in the cryptocurrency market just yet.

A Shadow Of An ETF

Goldman’s priority at the moment focuses around projects such as a custody product for crypto, a service that would be ideal for large institutional clients longing to get into the cryptocurrency market. This is aimed at providing a comfortable platform for these huge investors that will be highly interested in the safety of their funds, considering the volatile nature of the crypto market as it is today.

This isn’t very far from the prevailing ideology surrounding the introduction of an ETF for bitcoin and cryptocurrencies. Whether there is any synchronization between the decision of Goldman and SEC’s reluctance so far in the approval of a bitcoin ETF remains unknown to the public. However, the open-ended correlation of these decisions sustain the typical uncertainty that the cryptocurrency ecosystem has become used to.

Within the past 30 minutes, the Bitcoin price has dropped by more than 2 percent from $7,400 to $6,950, pushing tokens and other major cryptocurrencies to record large losses.

Ethereum, Ripple, Bitcoin Cash, and EOS recorded 6 to 7 percent losses as Bitcoin failed to maintain momentum in the $7,400 range.

If Bitcoin manages to immediately rebound to the $7,200 to $7,300 range in the next 12 to 24 hours and finds some stability in the low $7,000 region, then it is possible for the dominant cryptocurrency to avoid a downtrend to mid-$6,000.

However, if BTC falls below the $7,000 support level, as seen in May and July, a drop to the low $6,000 is expected.

Two Outcomes: Major Breakout or Minor Drop

Edward Morra, a cryptocurrency trader and technical analyst, wrote earlier today that a correction is incoming for Bitcoin, unless it shows a trend reversal supported by a spike in volume.

“Bitcoin is coiling tighter and tighter, making everyone wonder what to expect, but I feel like correction is incoming (if not a reversal). However, we also need to understand that shorting here is being in the vanguard, as there are no clear confirmation of a trend change as of yet,” Morra explained.

Two outcomes were presented to Bitcoin on September 5: a major breakout above the $7,500 mark and a potential run to $8,000 or another correction below the $7,000 mark and testing mid-$6,000 once again.

Given the magnitude of the drop in the price of BTC in a short period of time relative to the stability the dominant cryptocurrency has demonstrated since August 6, it is highly likely that the Bitcoin price will test the mid-$6,000 region in the upcoming days.

As BTC falls, tokens and small market cap cryptocurrencies are expected to bleed out further, deleting their temporary gains throughout early September.

Against BTC, even well-performing tokens like ICON, WanChain, and Ontology have fallen by nearly 70 percent since early 2018 and in the next few weeks, tokens will struggle to find momentum against BTC and ETH pairs.

Tokens in Trouble

The majority of traders in the cryptocurrency community have expected the season of tokens and small market cap cryptocurrencies to arrive in September considering that tokens have seen large losses against major cryptocurrencies for eight consecutive months.

Already, tokens like Nano, WanChain, Aion, Ontology, Waltonchain, and VeChain have dropped by 10 to 20 percent against the US dollar in the past hour.

The rapidly rising volume of both Bitcoin and Tether (USDT) signify the tendency of investors in the cryptocurrency market to hedge their investments to the value of the US dollar to avoid short-term falls. As the volume of USDT rises above the $3 billion mark, it is likely that the minor correction of BTC will be intensified.

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