CoinDesk Crypto

Bitcoin’s Lightning Network is bringing fiat to every corner of the world, thanks to Visa-partnered startup Zap Inc.

Strike – the Chicago-based startup’s Bitcoin wallet and banking service – is rolling out native support for the euro, pound and Swiss franc, soon to be followed by the Australian and Canadian dollar after partnering with cryptocurrency exchange Bittrex Global, according to Zap founder Jack Mallers in a phone interview with CoinDesk. 

Described by Mallers, as a “Bitcoin neo-bank,” Strike leverages the Bitcoin network and scaling technology the Lightning Network to move fiat fast from point A to point B. Zap plans on providing banking services in up to 200 countries via the international exchange.

Related: Market Wrap: Bitcoin Blows Past $36.1K While Traders Clamor for Ether Options

“We can move any physical value anywhere in the world for no variable cost,” Mallers said. “Transaction finality from one point to another for free.”

Moreover, Strike will also list popular stablecoins tether and USD coin (USDC), beginning with a pilot program in El Salvador. Stablecoins were one of the crypto industry’s breakout products in 2020. The market cap of dollar-pegged tokens rose some from around $7 billion to over $30 billion by the year’s end, according to Messari.

Read more: US Federal Regulator Says Banks Can Conduct Payments Using Stablecoins

Mallers said Bittrex Global will handle the behind-the-scenes operations with the tokens, which typically are issued on the Ethereum blockchain. Strike itself does not support ether or Ethereum-based tokens. Rather, each tether or USDC token is credited to an account on Bittrex and mirrored on Strike’s internal database, he said.

Related: Bitcoin Tops $37K, Setting Record, Hours After Roaring Past $36K

“Leveraging Bittrex Global’s technology, Strike users will be able to seamlessly send and receive payments using both fiat money and cryptocurrencies,” CEO of Bittrex Global Tom Albright said in an email to CoinDesk. “This will allow billions of people around the world to access the financial system in a simple low-cost way, fulfilling the original vision and promise of Bitcoin.”

Mallers chose El Salvador to pilot the stablecoin project because of its large availability of dollars, Bitcoin ATMs and one of the largest remittance markets in the world. The Latin American nation swapped out its native currency, the colon, in the early 2000s for the greenback. At the time, El Salvador was trying to stimulate economic activity by adopting the stronger currency in a case of intentional “dollarization.” 

South American neighbor Venezuela is next on the list, he added, with more stablecoin case studies on the way.

How Strike works

Strike moves fiat by buying and selling bitcoin in real time over the Lightning Network –  an experimental scaling solution built on top of the Bitcoin blockchain. 

To explain the process, the 26-year-old CEO used the example of shopping for one of his signature fashion choices. If you want to send money to a Berlin hoodie designer from the United States, Mallers explained, Strike will first auto-convert fiat into bitcoin. That bitcoin is then sent to a Strike Lightning node residing in the jurisdiction of the other currency. An auto-conversion between bitcoin and euros finishes up the transaction and deposits fiat in the Strike app, Mallers said. 

Read more: What is Bitcoin’s Lightning Network?

This money maneuver has two results, Mallers said. First, fees are so low you can customize how and when you pay, even down to the minute (as he pays one Spain-residing Strike employee). Second, Mallers argues that the exchange of two fiat currencies through a permissionless intermediary like Bitcoin creates a “true” foreign exchange rate. 

Mallers’ startup is working with two yet-to-be named banking providers on the venture. He declined to comment on the subject. Zap has also deployed an unspecified number of Bitcoin and Lightning nodes throughout the globe to support the project.

As reported by CoinDesk, Zap joined Visa’s Fast Track program in 2020. Capitalizing on the Visa partnership, Strike is rolling out its own debit card in the U.S. and EU in Q1 and Q2 respectively, Mallers said. The same instant and feeless experience exists with the card. 

The startup joins a number of other crypto firms, such as Fold, to launch cards with the Visa network.

The Bittrex Global partnership follows the release of Strike’s newest payroll feature that already lists professional athlete and Bitcoin advocate Russell Okung and unnamed players on the New York Yankees and Brooklyn Nets, not to mention Billboard Top 100 artists.

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The day after the U.K.-based EXMO crypto exchange was hacked last month, reportedly losing 6% of its crypto assets, the team got a call from the U.K.’s Financial Conduct Authority (FCA). 

The FCA recently put the exchange on the list for temporary registration and wanted to know what EXMO, an exchange with $117 million in daily volume, according to CoinGecko, was going to do to prevent such incidents in the future, the exchange’s COO Sergey Zhdanov told CoinDesk, providing rare details about how exchanges address regulatory requirements in the U.K. 

The country has been a jurisdiction of choice for many crypto startups. “The U.K. has always been a strong hub for financial companies, whether they are crypto or not. The regulatory framework, unlike other countries, for crypto has gradually started to become clearer and I feel this clarity is what companies are really searching for,” Iqbal V. Gandham, former managing director of eToro in London, told CoinDesk.  

Related: UK Exchange CoinCorner Adds Bitcoin Lightning Network Support

Last year, the country got serious about taking control of the crypto industry. This past summer, the FCA told cryptocurrency service providers they needed to register to keep operating in the U.K.. 

Since then, multiple applications have flowed in, prompting the agency to introduce a temporary registration regime for the companies it wouldn’t be able to vet before the Dec. 16, 2020, deadline. So far, only four companies have obtained the full registration, including the Winklevoss brothers’ Gemini exchange.

The list of 95 companies that received temporary authorization includes exchanges Bitstamp, Coinfloor and eToro, and infrastructure players Fidelity Digital Assets, Galaxy Digital, among others. EXMO, a smaller crypto exchange with a largely Russian and Ukrainian team, was on the list, too.

Instead of waiting around for cats to herd themselves, the FCA reached out to the companies, which is why last January the agency contacted EXMO to remind the exchange that new regulations were coming, Zhdanov said. 

Related: Kraken Users Are Staking More Than $1B in Crypto

“They said: ‘We’re monitoring all the crypto exchanges and wanted to make sure you know that you should be doing user verification. I was surprised that they contacted exchanges themselves,” he added. 

How it started

EXMO was launched in 2014 by a team of Russian crypto enthusiasts headed by then-real estate developer Ivan Petukhovsky. “If I knew back then how challenging it [the business] would be, I probably wouldn’t even have started it,” he told CoinDesk over a call.

Even though the team initially was located in Thailand, where Petuknovsky’s real estate business was located, EXMO chose to register its headquarters in the  U.K.

“Back then, nobody understood if a legal entity [for a crypto business] was needed and if it was important at all,” Zhdanov said. “But after mid-2017, after the [initial coin offerings], all the banks turned away from crypto and we realized that a legal entity was very important.”

Getting a bank account is a problem for the crypto industry; even now, only a handful of banks are serving crypto businesses, Zhdanov said. It didn’t matter that much at the dawn of the crypto industry, in 2016 and earlier, he added. Back then, partnering with payment processors was enough to provide small crypto purchases, while for large amounts of crypto people would often just pay the over-the-counter brokers with cash. 

But as crypto got more attention, the need for a bank account became more urgent. 

Things got slightly better over time, but not a whole lot. “In 2018, we got a lot of rejections from banks,” Zhdanov said. “Back then, 90% of banks would refuse to work with crypto. Now, it’s probably 80%.”

The other 20% or so apply strict compliance rules, he added. In Europe, as the industry is getting more regulated it’s getting a bit easier. 

But even having a legal entity does not guarantee a bank would serve you, Zhdanov said. At first, EXMO got an Estonian license – one of the first registration formats for crypto businesses in the world. But that did not open the doors of banks for EXMO, Zhdanov said. Only in early 2020 did the exchange get an account with Lichtenstein’s Friсk Bank. 

How it’s going

Since last year, stricter anti-money laundering (AML) rules, under the so-called AML5 directive, came into force across Europe. EXMO introduced obligatory authentication for users. Users did not like it, Zhdanov said: About 10% of EXMO’s clients left immediately. “Someone just didn’t want to get verified, someone tried, got an error and didn’t want to try again,” Zhdanov said.

However, all the big traders stayed on the platform because they had already been verified, he noted. Verification gives more control, so if an account gets compromised a verified user can ask the exchange to stop a withdrawal transaction by proving an intruder is trying to get money out.

Now, with the registration and more regulatory requirements, the compliance team of EXMO was nearly doubled, to 26 people. Overall income fell 10%, Zhdanov said, both because of the users’ outflow and the new costs of more compliance officers, new software for transaction-tracing and keeping up with sanction lists. 

EXMO is relying on the outsourced contractors located in Russia and Ukraine for tech support. FCA appeared to be interested in why the workforce is located in these “high-risk” countries, Zhdanov said. The explanation that it’s more “cost efficient” worked, he added. 

To users in such countries, the exchange is applying an “enhanced due diligence,” Zhdanov said. EXMO is especially popular among Russian-speaking traders, and the majority of users come from Russia, Ukraine and Belarus. 

However, the FCA only wanted to know how many U.K. users EXMO serves. Britain is the fourth-largest jurisdiction for EXMO in terms of users, Zhdanov said, with 500 monthly active users. “I think [FCA] needed to make sure you are working with the U.K. market at all, so they don’t have to regulate companies that aren’t even doing business here,” Petukhovsky said.

Another question was how many people are using EXMO, but there is a catch: How do you define a “user”? Someone who registered on a platform? Someone who has a deposit in an account? Someone who did at least one trade? These can be different numbers, the EXMO team said. They ended up counting how many users made at least one trade over the past year, Zhdanov said. That turned out to be 400,000 users. 

The FCA asked how many of those were verified, and why not all. The team explained that some people had been trading but didn’t try to withdraw money from their accounts, so for the time being there was no risk associated with such users and no need to verify them. The FCA seemed to accept the logic because it hasn’t asked about this anymore, Zhdanov said. The agency also requested a sample of cases for users blocked for AML reasons, with the detailed reports. 

Overall, despite the burden of the new regulation, FCA’s approach seems reasonable so far, Zhdanov said: “Their job is to protect users. That’s what is shaping their interaction with us.”

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More than $1 billion worth of cryptocurrencies have been staked through Kraken’s staking service, the crypto exchange announced on Wednesday. A third of that amount is in ether, roughly more than 300,000 ETH, according to a spokesperson from the San Francisco-based crypto exchange. Other popular cryptocurrencies on Kraken’s staking services include tezos (XTZ) and polkadot (DOT).

Kraken’s users have staked about 58 million DOT (approximately $580,000,000) and 45.5 million XTZ tokens (about $22,500,000), according to data provided by Kraken.

The fast growth of the staking value reflects the many long positions of investors and traders in cryptocurrencies, according to Jeremy Welch, Kraken’s vice president of product.

Related: Maker’s MKR Token Surges to 2-Year High on DeFi Growth

“Staking’s popularity is the natural outcome of an asset class growing in maturity,” Welch told CoinDesk. “Whereas three years ago holders were mainly interested in securing short-term gains, many are now confident locking up tokens to earn passive income. Why? Conviction is growing in the longevity of crypto assets as a respectable new asset class.”

Kraken also provides staking services for five other cryptocurrencies, including kava (KAVA) and cosmos (ATOM), with yearly rewards varying between 0.25% and 20%.

“Staking” refers to locking up one’s cryptocurrencies to receive rewards for participating in transaction validation on a proof-of-stake blockchain. Many crypto exchanges offer staking services so users do not have to stake their coins directly from their wallets.

Kraken started providing the Ethereum 2.0 staking service on Dec. 3. It warned its users in a blog post at the time that staking is mostly for “long-term ether holders” because “staking ether cannot be unstaked and, along with staking rewards, cannot be transferred for an unknown period of time.”

Related: Market Wrap: Bitcoin Blows Past $36.1K While Traders Clamor for Ether Options

The total amount of ether locked in Ethereum 2.0 has recently surpassed $2.58 billion, less than a month since ether’s value broke the $1 billion landmark, according to data from Etherscan. As of press time, ether was trading at $1,145.22, a gain of 8.55% in 24 hours. It is close to its all-time high at $1,448.18, according to CoinDesk 20 data.

Correction: Kraken’s announcement was Wednesday, not Tuesday.

Related Stories

• UK Exchange CoinCorner Adds Bitcoin Lightning Network Support
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Bitcoin bulls pushed the leading cryptocurrency to fresh all-time highs above $35,000 Tuesday night after a couple days of choppy price action kept traders guessing which direction the market would head next. The price is rising, and fast.

• Bitcoin jumped nearly 12% Tuesday to top the previous record high of $34,544.94 set this past Sunday after a dizzying climb over the New Year’s weekend. After setting that mark, however, the price of bitcoin bounced between $32,500 and $34,500 followed by a swift drop to $28,000 with losses pared nearly just as quickly.
• Bitcoin set a new all-time high of $35,106, just as this post was going live.
• Throughout this price action, cryptocurrency traders starting cutting leveraged positions across the board, according to estimates calculated by cryptocurrency data provider CryptoQuant. Taking to Twitter, CEO Ki Young Ju said the change signaled traders were “uncertain” and “scared” about the markets “next move.”
• With fresh record highs, the market’s direction seems a bit more clear.
• “It’s rather simple I think,” said Matt Kaye, managing partner at Santa Monica-based Blockhead Capital, talking to CoinDesk about bitcoin’s price action. “There are more spot buyers than spot sellers going into a year that is likely going to transform US fiscal policy for the next decade.”
• Bitcoin’s latest surge comes as results from the Senate runoff election in Georgia are coming in. Some a speculating a Democrat-controlled Congress could exacerbate current inflation concerns shared by many bitcoin investors.
• Bitcoin has gained more than 20% so far in January following its more than 300% gain in 2020, driven largely by an influx of institutional investment.

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Origin is relaunching its yield-generating stablecoin following a November attack that drained OUSD holders of $7 million.

Starting now, users can once again exchange USDC, USDT and DAI for OUSD.

As CoinDesk reported in September, the smart contract powering OUSD was not yet audited. OUSD allowed users to deposit the most popular stablecoins that would be plugged into decentralized finance (DeFi) yield farming strategies, the returns on which would be returned to OUSD holders by increasing the balance in each wallet.

Read more: Origin Debuts OUSD, a Stablecoin That Works Like a Savings Account

Related: BitGo Launches Wrapped Bitcoin, Ether on Tron Blockchain

By November, the smart contract had $7 million locked in it, which the company argues proved demand. However, in mid-November it was drained due to a re-entrancy bug in the smart contract (the same exploit that sunk the original DAO). 

“We remain committed to our vision of a superior stablecoin for the Ethereum network. Despite the setback from the hack, we are returning with renewed confidence that we are building something important, that people really want,” Josh Fraser, Origin CEO, said in a statement. 

OUSD compensation plan

On Dec. 11, Origin released a plan for compensating users who lost funds in the attack. The first 1,000 OUSD lost for each user would be fully compensated in OUSD. After that, holders still get compensated but with a little OUSD now and a lot of Origin’s governance token, OGN, later.

There have been several tokens that gain value in much the same way as OUSD. For example, Aave’s aUSDT and Curve’s yUSD currently boast returns of more than 10% annual yield as of this writing. Ampleforth’s AMPL works somewhat differently but offers comparable passive benefits. 

Related: Ethereum: The Last Bastion for Yield

With the relaunch, the team released a fresh post-mortem on the attack, where they found several places where their security had broken down. OUSD contracts have now been through two audits, a better update procedure is in place and they are exploring insurance. 

“Going forward, security will be our number one priority for OUSD,” Fraser said. “While we will continue to strive to offer highly competitive yields, we learned the hard way that security needs to come first.”

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BitGo’s Ethereum-based tokenized bitcoin project, Wrapped Bitcoin (WBTC), has expanded to its second blockchain, Tron. The crypto custodian has also launched Wrapped Ether (WETH) on Tron as well.

• BitGo clients are already minting WBTC and WETH as TRC-20 tokens on Tron, according to the company’s public orderbooks.
• After a few test mints executed by BitGo in mid-December, nearly 100 BTC (roughly $3.4 million at current prices) have been wrapped and minted as TRC-20 WBTC tokens by Alameda Research and CoinList.
• Alameda also minted 1 WETH on Tron Tuesday morning. The trading firm’s TRC-20 WBTC and WETH mints were made to meet over-the-counter (OTC) client demand and test the new product, Alameda’s Ryan Salame told CoinDesk.
• BitGo announced a partnership with Tron in September with plans to bring WBTC and WETH to Justin Sun-founded network, per CoinDesk’s prior reporting. Now the project is fully operational.
• “Our blossoming alliance with BitGo has finally brought cross-chain solutions like WBTC and WETH to fruition,” Sun said in a statement.

Read more: BitGo Is Bringing DeFi-Friendly Wrapped Bitcoin to the Tron Blockchain

• The supply of ERC-20 WBTC, BitGo’s original tokenized bitcoin project, saw nearly parabolic growth through the second half of 2020, peaking at over 124,000 BTC wrapped on Ethereum in late November. As the decentralized finance (DeFi) sector has cooled off, however, the supply of ERC-20 WBTC has dipped to its current level of nearly 110,000 tokens.
• In September, the total value of all Ethereum-based tokenized bitcoin projects passed $1 billion for the first time.
• At current prices, BitGo alone has tokenized $3.8 billion worth of bitcoin on the Ethereum and Tron blockchains.

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Higher-than-average spot volume, even for the past month, is helping push bitcoin’s price upward at a time when traders are plowing into ether futures at a quick pace to open 2021.

• Bitcoin (BTC) trading around $33,987 as of 21:00 UTC (4 p.m. ET). Gaining 8.9% over the previous 24 hours.
• Bitcoin’s 24-hour range: $29,986-$34,220 (CoinDesk 20)
• BTC well above its 10-hour and 50-hour moving averages on the hourly chart, a bullish signal for market technicians.

Bitcoin’s price made gains Tuesday after a four-hour sell-off was reversed around 06:00 UTC (1 a.m. ET). That led to a steady climb to as high as $34,220 as of press time. 

Read More: Bitcoin Bounces Back Above $31K After Monday’s Drop

Related: Bitcoin Retail FOMO Brings a Heap of ‘Kimchi Premium’ to S. Korea

“Bitcoin has extended its already-steep uptrend to new all-time highs,” said Katie Stockton, a technical analyst for Fairlead Strategies. “The signs of exhaustion that appeared in December were absorbed via a brief consolidation phase, and there are no active overbought ‘sell’ signals.” 

So far in the five days of 2021, the world’s oldest cryptocurrency is up over 16%.

Stockton still sees “support,” the price floor where traders step to buy, much lower than the current spot price. 

“Initial support is below $25,000, which hints at a continued day-to-day volatility,” she said. Since Dec. 31, bitcoin’s realized volatility has been creeping back up, from 55.5% to 63.3% Monday, a rise not entirely uncommon of late but nonetheless something traders track.

Related: Tetragon Sues Ripple to Force Stock Redemption

“On a technical basis, things have been overbought for a while,” said Andrew Tu, an executive for quant trading firm Efficient Frontier. “The overall trend is still upwards and this seems unlikely to change, though the pace may not be like it was during the holiday season.”

Spot bitcoin volumes are looking quite robust; Monday was the highest-volume day on the eight CoinDesk 20 exchanges in the past month, at over $6.6 billion. Tuesday’s spot volume is also looking healthy, at $4.2 billion as of press time. In the past month, volumes have averaged $2.3 billion per day.

“If bitcoin continues to rally at its current rate, I believe we could see a price of $54K around Valentine’s Day,” said Nicholas Pelecanos, head of trading for blockchain ecosystem provider NEM. “We could see a higher price than this by the end of Q1; $74K is also on my radar.”

Read More: JPMorgan Predicts Bitcoin Price Could Rise Over $146K in Long Term

However, Pelecanos still envisions an eventual retreat from those lofty forecasted prices. “I have the sense a pull back from $54K would leave the bitcoin price to consolidate around $35K,” Pelecanos said. 

It may be hard to remember but less than a year ago during 2020’s sell-off in traditional and crypto markets, bitcoin hit a low of $3,867, according to CoinDesk 20 data.

“Based on previous cycles we could be in for a year or so of extreme bullishness,” Pelecanos said. “With all cycles, the crash comes from the madness of the crowd. There won’t be a catalyst news story, the market will just run out of buyers.”

Ether futures boiling hot to open 2021

Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Tuesday, trading around $1,095 and climbing 7.3% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Read More: As Bitcoin Rally Pauses, DeFi Keeps Astounding

The ether futures market continues to see staggering gains in the first trading week of 2021. Since Sunday, ether futures open interest (OI) on major venues has grown $350 million to $2.95 billion total, with Binance by far leading the way at $734 million in open interest alone.

The record-high open interest could easily simmer down, according to Vishal Shah, founder of derivatives venue, Alpha5. “It’s just leverage. It wipes itself out a lot when financing gets high and the market is looking for a story once it races ahead,” he told CoinDesk. 

Brian Mosoff, chief executive of investment firm Ether Capital, said ether’s spot price still has room to grow, and the growth of futures is a sign of that. 

“ETH is still below the all-time high, and many believe with all the positive news in the latter half of 2020 it still has room to grow,” Mosoff said. “Ether futures are at an all-time high as the market sentiment has drastically shifted in the last few months. I’d attribute it to the successful launch of ETH2, macro conditions looking to alternative asset classes to hedge pending inflation and a robust ecosystem.”

Other markets

Digital assets on the CoinDesk 20 are mostly green Tuesday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

• stellar (XLM) + 23.4%
• algorand (ALGO) + 19.3%
• cardano (ADA) + 19%

Notable losers:

• tron (TRX) – 4.2%
• xrp (XRP) – 2%

Equities:

• Asia’s Nikkei 225 ended the day slipping 0.37%, led lower by a slump in shares of packaging container manufacturing company Toyo Seikan, which fell 3.6%.
• The FTSE 100 in Europe closed in the green 0.61%, boosted after British retailer Next jumped 8% on better-than-expected December numbers.
• The S&P 500 in the United States gained 0.50% as investors expressed optimism about oil prices up over 5% and some measure of government policy certainty after Tuesday’s Georgia Senate run-off election.

Commodities:

• Oil was up 5.6%. Price per barrel of West Texas Intermediate crude: $49.98.
• Gold was in the green 0.32% and at $1,948 as of press time.

Treasurys:

• The 10-year U.S. Treasury bond yield climbed Tuesday jumping to 0.948 and in the green 3.8%.

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Blockchain.com is the latest cryptocurrency exchange to pull the plug on XRP trading.

The crypto exchange and wallet provider said Tuesday it will halt XRP trading on Jan 14. Users will be able to send XRP outbound even after that date, but deposits will not go through.

Crypto exchanges have been dropping XRP support in droves following the U.S. Securities and Exchange Commission’s lawsuit against the cryptocurrency’s issuer, Ripple Labs.

Related: Tetragon Sues Ripple to Force Stock Redemption

Read more: Grayscale Drops XRP From Large Cap Crypto Fund Following Ripple SEC Suit

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A top gambling tech company has patented a way for bitcoiners to pay for their next digital roll of the dice with cryptocurrency.

International Game Technology plc, which builds slots and other tech for casinos, has yet to reveal any plans to integrate bitcoin, bitcoin cash and ether into its tech. But its new patent awarded Tuesday covers a means for HODLER-gamblers to pay for their bets with any of the three.

As described in U.S. Patent and Trademark Office filings, users of IGT’s method would be able to transfer cryptocurrency into their gaming accounts as a means of payment. There, the crypto would convert to fiat currency after payment of a fee.

Related: CipherTrace Says Homeland Security Work Gave Rise to Monero-Tracking Patent Filings

IGT’s filings include drawings of a mobile phone application for placing the deposits as well as a slot machine that would theoretically facilitate the actual bet. One drawing included a live bitcoin wallet address that IGT appears to have set up but never used.

But the patent is not exclusive to slots machines; rather, it also covers the means for moving crypto into the gambler’s account. IGT could theoretically roll out a now-patented method for crypto funding across any of its digital gambling platforms. The company has stakes in slots, lotteries and the burgeoning sports-betting scene.

Also Tuesday, IGT announced that Nevada’s powerful Gaming Control Board had approved its plans for a cashless wagering system that allows gamblers to fund bets at slot machines and table games with a tap of their phone. That announcement was mum on crypto integration.

IGT did not immediately respond to queries.

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One of Ripple Labs’ big financial backers is looking to reverse its bet on the XRP issuer.

Tetragon Financial Group LTD, the multi-billion asset manager-turned-plaintiff, had led Ripple’s $200 million funding round in December 2019. On Monday night the U.K.-based firm moved to exit its position in a sealed filing in Delaware Chancery Court, according to Bloomberg.

Just weeks ago the U.S. Securities and Exchange Commission put Ripple’s future in doubt with a blockbuster suit alleging XRP to be an unregistered security. That’s spooked the XRP markets and now, apparently, Ripple investors, too.

Related: Market Wrap: Bitcoin Breaks $34K as Ether Futures Interest Jumps $350M in a Day

Tetragon seeks to “enforce its contractual right to require Ripple to redeem” Series C preferred stock, Bloomberg reported. In the meantime, Tetragon wants the court to essentially freeze Ripple’s liquid assets until it pays.

Ripple rejected the lawsuit Tuesday. In a legal filing shared with CoinDesk the fintech said Tetragon can only opt to flip its Ripple equity back to cash “if XRP is deemed to be a security on a go forward basis.”

“Since there has been no such determination, this lawsuit has no merit. We are disappointed that Tetragon is seeking to unfairly take advantage of the lack of regulatory clarity here in the U.S. The courts will provide this clarity and we are very confident in our position.”

The filings were not immediately available at press time.

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Hello. A late night interpretative letter from the Office of the Comptroller of the Currency (OCC), the U.S.’ federal banking regulator, saying banks can act as stablecoin nodes was the juice needed to push bitcoin out of the doldrums. JPMorgan analysts see a future where 1 BTC could trade hands near $150,000, according to a new report. 

In other regulatory news, the comment period for a controversial wallet rule closed, with many heavy hitters coming out against the U.S. Treasury’s proposed rules to increase exchange surveillance. More on that later, first the top stories for the day.

Top shelf

Banking on stablecoins
A new letter from the U.S. federal banking regulator could give stablecoin networks the same status as other global payments networks like SWIFT or FedWire. In a possible last act from Acting Comptroller Brian Brooks, U.S. banks can now operate as stablecoin nodes and are free to send transactions, so long as they comply with securities and other regulations. Bitcoin markets rebounded on the news.

Related: First Mover: As Bitcoin Rally Pauses, DeFi Keeps Astounding

Supply crunch
Bitcoin mining machine prices are soaring along with bitcoin’s price. According to data reviewed by CoinDesk, a surge in mining revenue, limited manufacturing capacities and a number of new mining entrants has led to a supply shortage. It doesn’t help that established players like Riot and Marathon (both publicly traded) have been buying up the most up-to-date ASICs miners.

Brazil’s market
The battle to control Brazil’s growing crypto retail sector is heated, with Argentina’s Ripio acquiring BitcoinTrade, the second-largest crypto exchange in South America’s largest economy. Last month, Mexico City-based crypto exchange Bitso raised a $62 million funding round, a chunk of which was earmarked for a Brazil push, the company said.

Quick bites

• RIPPLE EFFECT: Grayscale drops XRP from Large Cap Crypto Fund following Ripple/SEC suit. (CoinDesk)
• TRADEBLOCK BUY: CoinDesk has acquired institutional analytics and data provider TradeBlock. (WSJ)
• MINING PIVOT: Two former Canaan directors are helping a Chinese mobile gaming company enter the crypto mining sector. (CoinDesk)
• VOYAGING OUT: Cryptocurrency broker Voyager Digital says Q4 revenue is expected to reach around $3.5 million, an increase of 75% from the previous quarter. (CoinDesk)
• TOKEN GENERATOR: Crypto exchange LCX is now licensed in Liechtenstein to help banks create their own digital assets and security tokens. (CoinDesk)
• FIRST MOVER: DeFi keeps astounding. (CoinDesk)
• KNOWN UNKNOWN? One River has completed “one of the largest digital asset trades in history,” according to facilitator Coinbase. The amount is unknown. (Decrypt)

Market intel

Gold bugs
A new investment report from JPMorgan has set a $146,000 price target for bitcoin. The bullish target is the latest analytical note that wagers bitcoin will become a popular alternative to gold. “Bitcoin’s [current] market capitalization of around $575 billion would have to rise by 4.6 times – for a theoretical bitcoin price of $146,000 – to match the total private sector investment in gold via exchange-traded funds or bars and coins.” The one thing holding the bitcoin beast at bay? Volatility. 

At stake

11th hour?
A comment period for a proposed set of rules that would increase reporting requirements for crypto exchanges and minimize blockchain user privacy closed yesterday, with many major crypto firms rejecting the maneuver.

Related: Blockchain Bites: $10B in Bitcoin Futures, Price Wobbles and Liquidations

Spearheaded by the U.S. Treasury Department in December, but shaped primarily by the global Financial Crimes Enforcement Network (FinCEN), the set of rules would see exchanges implement know-your-customer (KYC) requirements for transactions sent to unhosted wallet addresses, or addresses that exist outside a centralized or custodial setting.

This would mean many types of personal wallets as well as counterparties to exchanges’ customers would need to be identified. Reporting limits would be set for private wallets that receive more than $10,000 in 24 hours, and record-keeping rules for transactions valued at over $3,000. FinCEN and the Treasury Department claim the increased surveillance will aid criminal enforcement and reduce financial malfeasance.

The proposal was rushed out late on Friday, Dec. 18 – a week before many U.S. employees might expect to break for the winter holiday season – with the Treasury setting only a 15-day comment period. Many crypto industry commentators referred to the rushed timeline as onerous and potentially illegal.

Still, some 6,000 comments were filed with FinCEN within this narrow window, with firms such as Square, Andreessen Horowitz (a16z), Kraken as well as civil liberties organizations including the Electronic Frontier Foundation (EFF) and Coin Center coming out hard against the proposal. The reporting period has since been “extended” until Jan. 7.

“The process itself is fraught with an ‘us-versus-them’ hostility to the industry’s views – as seen by the breakneck schedule for a major rule, the thinness of Treasury’s justifications, and the lack of meaningful engagement before the eleventh-hour holiday rule making,” cryptocurrency platform Coinbase said, in a prepared statement.

While the rushed timeline was a frequent target – the rule was proposed as United States Secretary of the Treasury Steven Mnuchin is set to leave office – others noted the perverse effects these new reporting requirements could have for the fledgling crypto industry.

“This creates unnecessary friction and perverse incentives for cryptocurrency customers to avoid regulated entities for cryptocurrency transactions, driving them to use non-custodial wallets or services outside the U.S. to transfer their assets more easily,” Jack Dorsey, CEO of payments company Square, wrote.

In a press release, Kraken noted the proposed rule would be a “substantial departure from existing law.” And one, that if passed, Coinbase and a16z have pledged to fight in court.

In defense of the proposal, CoinDesk columnist and financial blogger John Paul Koning tweeted the rules would bring the crypto industry in line with practices already in place for money transmitters, such as those followed by remittance giant MoneyGram.

“Coinbase sending cryptocurrency to an unhosted address is like MoneyGram remitting physical cash to a stranger. MoneyGram has to collect personal information about the stranger. Shouldn’t Coinbase have to collect information about the unhosted wallet?” Koning wrote.

In response, Coin Center Director of Research Peter Van Valkenburgh, wrote that “equating a blockchain transaction to a funds transfer ignores the obvious difference … blockchain transactions can happen peer to peer while wires are always intermediated.”

Indeed, there are notable differences between the two systems of value transfer. With blockchains providing a public ledger of all transactions, an increased reporting rule could be a great intrusion into an exchange user’s financial privacy than simply identifying the recipient of a remittance – the total history of both counterparties financial lives would be on full view, including those that are unrelated to any centralized exchange.

As the EFF said in its statement against FinCEN’s rules: “Anonymity is important precisely because financial records can be deeply personal and revealing: They provide an intimate window into a person’s life, revealing familial, political, professional, religious and sexual associations.”

Who won #CryptoTwitter? Related Stories

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Swedish banks have expressed apprehension over the central bank’s proposed e-krona digital currency and how it could affect their industry.

With Sweden the nation that uses cash the least globally, the Riksbank has been considering taking digital payments using the e-krona mainstream. Late last year, Sweden’s financial markets minister, Per Bolund, said the Riksbank finance committee had launched a review into the prospects of switching the country to the digital currency, a study that will be completed in November 2022.

But bankers in the nation say this would fundamentally change how the banking system works, according to a Reuters report Tuesday.

Related: LCX Exchange Gets Licensed in Liechtenstein to Help Banks Create Their Own Digital Assets

One concern expressed is that if people move their money out of deposit accounts and to the e-krona, this could leave banks short of funding and leave them to rely on wholesale markets for liquidity, said the report.

Masih Yazdi, CFO of corporate bank SEB, said this would risk financial stability by making banks take on more debt and possibly become unprofitable.

How the central bank would manage the money it takes in is another question. Rickard Eriksson, an adviser for the Swedish Bankers Association, asked whether the Riksbank might lend funds to banks to compensate for the lack of deposits or would it merely hold them? The former option might mean mortgages and corporate loans may depend on the central bank’s risk appetite.

“I don’t think the Riksbank has really thought about this or come up with good answers,” he told Reuters.

Related: Ukraine Government Picks Stellar Development Foundation to Help Build National Digital Currency

Yazdi added that the central bank would be moving beyond monetary policy into areas like privacy. That’s because a blockchain-based digital krona would be traceable, unlike cash.

Read more: Sweden’s Central Bank Finally Embraces DLT, but Only in Simulation Mode

However, the central bank appears set on the project. Last October, Riksbank Governor Stefan Ingves called for the Swedish government to “review the concept of legal tender” and prepare legislation to make way for the e-krona.

“There shall be digital state money as legal tender, an e-krona, issued by the Riksbank,” Ingves wrote in an economic note at the time.

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Cryptocurrency media and events platform CoinDesk, which owns this news service, announced Tuesday it purchased TradeBlock, the world’s leading crypto index provider.

With the purchase, CoinDesk said it’s positioned to be the leading source of crypto news, information and data for the rapidly growing sector, which has seen a flood of interest and investment from financial companies. In the year just closed, the price of bitcoin, the leading cryptocurrency, rose more than 300%, driven largely by institutional investors.

”We will be crypto investors’ go-to destination for unified media, events, research, pricing and data,” Kevin Worth, CoinDesk CEO, said in a statement. 

Related: Argentina’s Ripio Acquires Second-Largest Crypto Exchange in Brazil

Financial terms of the transaction weren’t disclosed.

The entire TradeBlock team will remain with the company, which will operate independently from the media operations to maintain TradeBlock’s commitment to data security and confidentiality and the integrity of CoinDesk’s journalism, the media company said.

More than $20 billion of investment products use TradeBlock indexes and billion of dollars in monthly trading volume is quoted against them, CoinDesk said. The biggest user of TradeBlock’s XBX index is Grayscale Bitcoin Trust, the largest publicly traded crypto financial product, the media company said. Grayscale is owned by Digital Currency Group, the parent company of CoinDesk. DCG previously held a minority stake in TradeBlock.

Michael Casey, CoinDesk’s chief content officer, wrote in a blog post on Medium that the deal fits within a long tradition of news organizations serving as guardians and curators of crucial financial indexes, such as the Dow Jones Industrial Average, the Financial Times’ FTSE 100 and Nikkei’s Nikkei 225.

Related: PayPal Talks to Buy Crypto Firm BitGo Have Ended, Other Targets Eyed: Report

“Such outlets are ideally placed to foster trust in the integrity of the numbers,” Casey wrote. “Wall Street is coming. It will demand reliable prices.”

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Digital asset manager Grayscale Investments is following Bitwise’s footsteps in removing XRP from its large-cap crypto fund.

The firm, which is owned by CoinDesk parent company Digital Currency Group, announced Tuesday it would no longer hold XRP in the Grayscale Digital Large Cap Fund, which is also made up of BTC, ETH, BCH and LTC.

The move comes a couple weeks after fellow asset manager Bitwise liquidated $9.3 million in XRP from its crypto index fund and the U.S. Securities and Exchange Commission filed a suit against Ripple, alleging it had conducted an unregistered sale of securities with its XRP token.

Related: Market Wrap: Bitcoin Breaks $34K as Ether Futures Interest Jumps $350M in a Day

Grayscale still operates a standalone XRP Trust but stopped accepting new subscriptions to the fund on Dec. 23, Craig Salm, Grayscale’s legal director, said via email.

“Existing investors in the Trust will continue to receive annual reports, audited financial statements, and tax information statements,” Salm said. “The Trust will continue its daily 4 PM NAV striking as well as other associated functions pursuant to the Trust’s governing documents.”

Related Stories

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Bitcoin (BTC) was lower, after the quick reversal of a brief rally late Monday reportedly spurred by the U.S. Office of the Comptroller of the Currency’s decision to let banks participate in blockchain networks and use stablecoins as payments. 

“Bitcoin has started 2021 with a stark reminder that volatility is the norm,” Matt Blom, head of sales and trading with the cryptocurrency firm Diginex, wrote Monday. 

In traditional markets, European shares dropped after the U.K. imposed a new coronavirus-related lockdown. U.S. stock futures pointed to further losses after the benchmark Standard & Poor’s 500 Index slid 1.5% on Monday, the gauge’s worst start to a year since 2016. Gold rose 0.4% to $1,954 an ounce. 

Market moves

Related: Market Wrap: Bitcoin Breaks $34K as Ether Futures Interest Jumps $350M in a Day

The cryptocurrency subsector of decentralized finance, known as DeFi, is getting hot again. Maybe even hotter than in mid-2020, a timespan so sizzling with fast-paced growth that it became known as the “summer of DeFi.” 

Total collateral locked into DeFi protocols, the most commonly used metric for gauging uptake of the systems, has climbed to new record highs above $17.5 billion, according to DeFi Pulse, a website that tracks the space. That’s up from about $10.5 billion at the end of September and less than $1 billion at the start of 2020.  

In DeFi, entrepreneurs are building semi-automated lending and trading systems atop blockchain networks – aiming to someday, potentially, challenge banks and Wall Street trading firms. The arena rose to prominence in June through September of last year as a flurry of usage and high-profile token rollouts ignited enthusiasm among traders and venture-capital investors alike.   

The phenomenon faded from cryptocurrency headlines as bitcoin‘s price rally dominated market conversations in the final quarter of 2020, but a recent resurgence in DeFi has industry analysts buzzing again over its prospects.

Related: Ethereum: The Last Bastion for Yield

“User growth over time is ballooning and should continue to accelerate,” the cryptocurrency analysis firm Delphi Digital wrote in a Jan. 1 report. 

Prices for ether – the native cryptocurrency of the Ethereum blockchain, which has attracted much of the DeFi development – have soared 37% this year alone, outpacing bitcoin’s comparatively feeble 7% start to the year. 

The elevated pace of transactions on the Ethereum blockchain has also pushed up network congestion, sending fees to an all-time-high of $898,000 for a single day, according to Decrypt, a news site, which cited the data provider Glassnode. 

DeFi “can be best thought of as an emerging sector within the frontier digital asset market,” Dan Zuller, a partner at the investment consultancy Vision Hill, wrote last week in an op-ed. “Investors that put capital to work in this thematic sector of digital assets generally outperformed bitcoin and the digital asset market beta in 2020.”

According to Messari, a cryptocurrency data provider, the top 10 DeFi tokens, as ranked by market capitalization, have jumped an average 18% in the first several days of 2021, led by the decentralized exchange Loopring’s LRC token and decentralized derivatives platform Synthetix’s SNX. Uniswap, the biggest DeFi project with $1.4 billion of locked collateral, has seen its UNI tokens gain 10%.  

Denis Vinokourov, head of research for the cryptocurrency prime broker Bequant, said in an audio interview over Telegram that he’s encouraged by last month’s launch of a new digital token from 1inch, a platform designed to help users find the best trading prices available from decentralized exchanges. 

The development company behind the project late last year closed a $12 million funding round led by the digital-asset investment firm Pantera Capital. 

That’s despite DeFi sector risks exposed last year, when several platforms were upended by software bugs, sophisticated trading exploits and unexpected exits (with tokens) by project leaders – the latter seen as so serious a threat that industry executives and journalists gave the maneuver its own term, the “rug pull.” 

“The decentralized world of chaos is becoming more professionalized,” Vinokourov said. “There’s huge growth potential.” 

– Bradley Keoun

Bitcoin watch

The staggering rally from $10,000 to $34,000 over the past three months looks overbought, from the look of price charts. However, blockchain data suggest the cryptocurrency has scope to rally even more.

For example, take the MVRV Z-score, which is derived from blockchain data and measures the average deviation of individual coins’ market value from their realized value – the price at which they last changed hands. The metric is used to assess undervalued and overvalued market conditions.

Bitcoin’s market-value-to-realized-value (MVRV) Z-score has risen to a three-year high of 5.32. But it remains well below the 7.0 score at which an asset is considered near a top, according to Glassnode. Historically, above-7.0 readings have marked the end of bull markets. 

Options traders also remain hungry for further upside, as noted by crypto derivatives research firm Skew. The one-, three-, and six-month put-call skews, which measure the cost of puts (bearish bets) relative to calls (bullish bets) are hovering well in negative territory. That’s a sign of bullish bias.

Further, the market is now looking less overheated than it did 24 hours ago with the perpetual funding rate – the cost of holding long positions on major derivatives exchanges – falling to 0.039% on Tuesday from an 11-month high of 0.137% reached Monday.

Though the path of least resistance appears to be on the higher side, the cryptocurrency may face some temporary selling pressure if equities react negatively to potential Democrat failure to sweep Tuesday’s Georgia elections. Analysts at Goldman Sachs noted Monday that a Democrat-controlled Senate would pave the way for bigger fiscal stimulus. 

– Omkar Godbole

Read More: Bitcoin Bounces Back Above $31K After Monday’s Drop

What’s hot

U.S. federal regulator OCC says banks can conduct payments using stablecoins, participate in independent node verification networks, potentially elevating blockchains to status of other global financial networks like SWIFT, ACH and FedWire (CoinDesk) 

JPMorgan predicts bitcoin price could rise over $146K in long term, while seeing signs of “speculative mania” in short term, Bloomberg reports (CoinDesk)

Coinbase, Square Rally against FinCEN’s proposed crypto rules (Decrypt) 

Grayscale Ethereum Trust’s price premium tanks as new shares hit public market (Bloomberg) (EDITOR’S NOTE: Grayscale is owned by Digital Currency Group, the owner of CoinDesk.) 

Bitwise assets under managements top $500M after crossing $100M just three months ago (CoinDesk) 

Bitcoin mining machine shortage worsens as Bitmain sells out through August (CoinDesk) 

It wasn’t until August 1974 in the U.S. when gold became an investable asset class, and in the six years following its reintroduction, prices tripled in real terms; bitcoin might exhibit similar behavior, Ritholtz Wealth Management’s Nick Maggiulli writes in op-ed (CoinDesk Opinion) 

Former Canaan directors to guide Chinese gaming firm’s pivot to crypto mining (CoinDesk) 

Analogs The latest on the economy and traditional finance

A flip to Democrat control of U.S. Senate following special Georgia elections could put downward pressure on dollar and spark an increase in Treasury bond yields, due to the likelihood of “even greater convergence of loose fiscal and monetary policy” (Reuters)    

Stocks and bitcoin are massive bubbles, former Merrill Lynch economist (and longtime bear) David Rosenberg warns (CNBC) 

What is socialism except a permanent stimulus? Former U.S. Senator Phil Gramm writes in op-ed with Mike Solon (WSJ) 

NYSE scraps plan to delist China telcos in “bizarre” U-turn (Bloomberg) 

China may have emerged as the “hard-money capital of the world” (Exante) 

Tweet of the day Related Stories

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Cryptocurrency broker Voyager Digital (CNSX: VYGR) says its revenue for Q4 2020 is expected to reach around $3.5 million, an increase of 75% from the previous quarter.

• In an announcement Tuesday, the Canada-listed firm said the increase is also up 3,877% from the fourth quarter of 2019.
• Voyager further reported a December revenue run rate of over $20 million, compared to $200,000 in December 2019. A run rate is estimated revenue extrapolated from available figures.
• Assets have continued to grow, Voyager said, increasing over three times from the September quarter to over $265 million in early January.
• “As widespread adoption of cryptocurrency grew in the latter part of 2020, we have seen 2021 get off to a quick start and we are well-positioned to continue our extraordinary growth through 2021 and beyond,” said Stephen Ehrlich, co-founder and CEO of Voyager.
• In October, Voyager moved to expand into Europe, acquiring LGO, a French cryptocurrency exchange primarily serving institutional investors.

Read more: Voyager to Pay Interest on DeFi Tokens to Gain Brokerage Clients

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Crypto exchange LCX has been granted eight out of the 11 crypto-related licenses in Liechtenstein, expanding its security-token services and allowing the company to continue operating in the region.

The licenses make LCX a regulated crypto exchange, digital asset custody provider, price oracle provider, digital asset compliance provider, smart-contract creator and token-offering platform, said LCX CEO Monty Metzger.

The exchange had already been operating with retail crypto services in Europe and Switzerland and security token services in the U.S., but now those services are expanded, allowing the firm to custody and also generate security tokens for its clients. 

Related: Swedish Bankers Air Concerns Over E-Krona Digital Currency Plan

“If one of the banks wants to have [security token] clients worldwide and wants to go through Liechtenstein, they have to work with one of the regulated token generators,” Metzger said. “We are the only token generator in the region.” 

In an era where banks are not only exploring bitcoin but their own digital assets, LCX is positioning itself to be a retail exchange that can help other institutions launch their own digital assets. Last year, several central banks explored the idea of creating central bank digital currencies (CBDCs), including the U.S., China and South Korea.

Read more: This Liechtenstein Bank Can Now Custody Crypto

Because LCX operated before Liechtenstein had developed its crypto regulatory framework, the exchange has been run under a grandfather clause that exempted it from licensing requirements for a brief period.

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Argentina’s Ripio has acquired BitcoinTrade, the second-largest crypto exchange in Brazil, in a bid to increase its footprint across the frothy Latin American crypto market. 

Ripio (formerly called BitPagos) ended 2020 on a high, crossing the 1 million user milestone. Earlier last year, the firm began looking in earnest for a good fit in Brazil and decided on BitcoinTrade, said Ripio CEO and co-founder Sebastian Serrano. The financial terms of the deal were not revealed.

“Brazil has always been a very important market for us,” Serrano said in an interview. “BitcoinTrade has a very good reputation in the market, very good processes and compliance. It also has a very meaningful user base – about 300,000 users in Brazil – and very good volumes on the exchange.”

Related: CoinDesk Acquires TradeBlock, Adding Indexes and Pricing to News, Events Offerings

Serrano also pointed to BitcoinTrade’s well-established banking relationships in Brazil, which includes accounts with Santander, Banco Itaú and Banco do Brasil. 

Brazil has the largest GDP in Latin America and seems to be a highly desirable virgin territory among South American and Central American crypto exchanges. Last month, Mexico City-based crypto exchange Bitso raised a $62 million funding round, a chunk of which was earmarked for a Brazil push, the company said. 

Read more: Coinbase-Backed Bitso Raises $62M to Expand Crypto Footprint in Brazil

“We have a very good relationship with Bitso,” said Serrano. “Bitso and ourselves are the two really well-funded companies with access to venture capital. There are no companies in that position in Brazil. But really I think the opportunity is about growing the entire Latin America market.”

Since its launch in 2013, Ripio has raised $44 million ($37 million of that thanks to an initial coin offering in 2017, geared towards building a peer-to-peer lending system based on Ethereum). 

Related: PayPal Talks to Buy Crypto Firm BitGo Have Ended, Other Targets Eyed: Report

The firm, which now has over 150 employees in Argentina, Brazil, Uruguay, Mexico and Spain, has also raised capital from Draper Ventures, Pantera Capital and Digital Currency Group (which is also the owner of CoinDesk). In terms of previous acquisitions, Ripio bought Unisend, another Latin American bitcoin exchange back in 2015.

BitcoinTrade founder Carlos Andre Montenegro will be stepping down from day-to-day duties of running an exchange to focus on running his family office. His role will be taken by Bernardo Teixeira, BitcoinTrade’s current CFO.

“We’re very excited and confident that Ripio is the best choice to help extend the path we’ve built with BitcoinTrade in Brazil,” Montenegro said in a statement.

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Hong Kong police are searching for robbers who lured a trader into a meeting on Monday and stole cash and bitcoin before pushing him out of a car.

• The criminals tricked the 37-year-old man into a meeting outside a hotel in North Point on Monday, where two men arrived in a car to pick up the victim, the South China Morning Post reported on Tuesday.
• Police said the trader had chatted with the men online before agreeing to the in-person meeting to sell the men 15 BTC.
• The trader was paid around HK$3 million (almost US$387,000) in cash in the car after he’d transferred the bitcoin to the two buyers, said the report, citing a police source.
• The men then drove the trader an estimated 6 kilometers where they met another three men before forcing him out of the car on a Hong Kong hillside.
• The man was not injured, but the cash and two mobile phones were stolen, per the report.
• The 15 BTC, at a price of around $31,000 on Monday, would have been worth US$465,000, meaning approximately US$852,000 was stolen in total.

Read more: Hong Kong ATMs Must Be Excluded From Coming AML Regulations, Group Says

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• Bitcoin Bounces Back Above $31K After Monday’s Drop

Bitcoin is trading higher on Tuesday, and the bull market is looking less overheated than it did a day ago.

At press time, the top cryptocurrency by market value is changing hands near $31,590, representing a 5% gain on a 24-hour basis. Bitcoin had dipped by 15% to near $28,000 during Monday’s European trading hours.

The sudden sell-off happened after the average perpetual funding rate (the cost of holding long positions) on major derivatives exchanges rose to an 11-month high of 0.137%, implying excess bullish leverage.

Related: JPMorgan Predicts Bitcoin Price Could Rise Over $146,000 in Long Term

“The bitcoin futures market was very over-leveraged and overcrowded before the drop,” analyst Joseph Young noted in a Substack post, adding that the market now looks less overheated with funding rates having dropped.

The average now stands at 0.039%, according to data provided by the blockchain intelligence firm Glassnode. Further, major exchanges liquidated $936 billion-worth of long positions on Monday – the highest in at least eight months – wiping out excess leverage.

Sentiment remains bullish

Bitcoin’s swift recovery from Monday’s low indicates dip demand, a sign of the bullish mood in the market.

“The Coinbase premium reappeared as bitcoin began to recover, which is a good sign,” Young noted. “This means high-net-worth investors in the U.S. took advantage of the drop and bought bitcoin.”

Related: SkyBridge’s Bitcoin Cache Rises to $310M as New Fund Launches

The options market continues to paint a bullish picture amid the high price volatility, with the one-, three-, and six-month put-call skews hovering well into the negative territory, according to data source Skew.

Put-call skews measure the cost of puts (bearish bets) relative to calls (bullish bets). Meanwhile, on-chain metrics show scope for a continued price rally.

While bitcoin’s market value to realized value (MVRV) Z-score has risen to a three-year high of 5.32, it remains well below the 7.0 level at which an asset is considered near a top, per Glassnode. Historically, above-7.0 readings have marked an end of bull markets.

According to trader Alex Kruger, Monday’s low of $28,154 could turn out to be this week’s bottom, especially if the U.S. Democrats sweep Tuesday’s Georgia elections and gain control of the Senate.

A Democrat-controlled Senate would pave the way for more significant fiscal stimulus, according to Goldman Sachs. Fiscal stimulus is inflationary in nature and would likely strengthen the long-term bull case of scarce assets such as gold and bitcoin.

Also read: Crypto Markets Jump on OCC Approval for Banks to Use Blockchains 

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