Both the cryptocurrency market and old-school financial markets are digesting the details of new revenue measures under consideration by the Biden administration.
• Bitcoin (BTC, Tech/Adoption Grade “A-”) continues its struggles as it falls below the $50,000 price level.
• Ethereum (ETH, Tech/Adoption Grade “A-”) falters after setting new highs yesterday, while currently trading around $2,300.
• The crypto market, as reflected in the Weiss Crypto Indexes, retreated this week with participants grappling with what looks like a punitive proposed capital gains rate.
Investors are largely blaming President Biden’s increase of the capital gains tax rate for Bitcoin’s slide to $49,000 as the proposal is seen as a risk to wealthy traders and crypto whales.
Bitcoin has faced continuous pressure this past week due to margin calls on overleveraged speculators. Bullish bets didn’t pan out, and the super-aggressive are seeing their funds liquidated.
Bitcoin has traded below its 21-day moving average since the beginning of this week, and it will be important to see if the King of Crypto can regain momentum despite downward pressure from trading pairs and negative regulatory catalysts.
Here’s Bitcoin’s price in U.S. dollars via Coinbase Global, Inc. (Nasdaq: COIN):
While Bitcoin hasn’t been able to keep pace with the broader market, Ethereum has been on a significant run, setting a new all-time high near $2,650 on strong volume yesterday.
Investors are keeping their eyes on the important $3,000 psychological price level, which, if exceeded, could spark a bigger move.
Ethereum’s recent activity is exceptionally bullish — today’s pullback notwithstanding — because it remains in high demand despite exceptional outflows into ERC-20 projects.
ETH has consistently traded above its 21-day moving average since late March, save for brief bounces off of key support levels above $2,000.
Here’s Ethereum’s price in U.S. dollars via Coinbase:
Index Roundup
After gathering sizable positive momentum over the last several weeks, the broader crypto market slid during the seven-day trading week that ended Thursday.
While this pullback comes from profit-taking, forced liquidations and an expected tax hike, we’ll see if it sustains.
In the traditional equity markets, the dip after the capital gains tax announcement has already disappeared following a strong performance so far today.
The Weiss 50 Crypto Index (W50) lost 14.62% as the market pulled back from new highs set last week.
The Weiss 50 Ex-BTC Index (W50X) shed 9.45%, showing that Bitcoin couldn’t keep pace with the most established cryptocurrencies.
Breaking down this week’s performance by market capitalization, we see that only the small-caps were exempt from the pullback.
The Weiss Large-Cap Crypto Index (WLC) dropped 15.49%, as Bitcoin’s struggles dragged down many of the biggest names.
The mid-caps managed to outperform the largest cryptocurrencies, but they still weren’t able to close the week in the green. The Weiss Mid-Cap Crypto Index (WMC) decreased 5.07%.
Small-cap cryptocurrencies were the only winners this week, as the Weiss Small-Cap Crypto Index (WSC) gained 15.52%.
This week’s price action showed more outflows into smaller altcoins from the major trading pairs. We’re seeing a continuation of altseason, with large-caps lagging the smaller, higher-growth altcoins.
Less established projects are trying to assert themselves in the space, capture market share and secure marketable partnerships. These propositions are sparking huge gains for smaller names along with the rotation of capital from larger cryptocurrencies.
Notable News, Notes and Tweets
• MicroStrategy Inc. (Nasdaq: MSTR) CEO Michael Saylor responds to taxation fears by reiterating Bitcoin’s long-term value proposition.
• Pomp rebuts Bitcoin naysayers hyping the recent dip with some bullish commentary.
• Twitter, Inc. (NYSE: TWTR) and Square Inc. (NYSE: SQ) CEO Jack Dorsey retweets Square Crypto’s take that Bitcoin is important for renewable energy’s future outlook.
What’s Next
The market cooled down on fear of higher capital gains taxes. But the major question is whether they’re retroactive for 2021 or kick in next year.
The Biden administration will also have to clear congressional hurdles, where it’ll face stiff opposition from Republican lawmakers. The party breakdown in the Senate means this proposal is far from finished policy.
It’s still early. If a bill even makes it back to President Biden to be signed into law, it’ll likely look a lot different from what’s been reported so far.
Now, regardless of short-term taxation and other potential regulatory headwinds, the long-term outlook for crypto is extremely bright. Institutional adoption is still in its early stages, and a recent study indicates that just 14% of Americans own any crypto at all.
Again, it’s still early. There’s still a lot of room for this altseason to expand, as investors continue to look for massive gainers. Ethereum has been leading this charge, despite its status as one of the biggest trading pairs, and that’s a bullish signal.
The standard flow of capital in crypto funnels from Bitcoin to larger altcoins before trickling into the smallest projects, so it’s likely that we’re still in the beginning of a wild altseason.
Best,
Sam
