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| By Marija Matic |
Bitcoin (BTC, “A-”) has dropped below the $28,000 level today after gaining 60% in 90 days. The pullback was expected but also more volatile due to Commodity Futures Trading Commission’s lawsuit against Binance, which was filed today in Illinois federal court.
The lawsuit is against CEO Changpeng Zhao and the exchange itself for violating rules related to derivatives.
According to the CFTC, Binance, the biggest crypto exchange, neglected to follow its "insider trading" policy for 300 accounts linked to the CEO and the company, leading to the alleged rule breaking. CFTC has also accused them of violating compliance rules to attract U.S. customers.
The agency is seeking “disgorgement, civil monetary penalties, permanent trading and registration bans and a permanent injunction against further violations of the Commodities Exchange Act and CFTC regulations.”
While the situation is ongoing, CZ tweeted this:
Click here to see full-sized image.
Bitcoin reacted by dumping to levels similar to what we saw on March 22 when the U.S. interest rate was hiked by 25 basis points. It is currently trading around $27,000:
If BTC breaks below $26,500, the next strong support would be at $25,250.
On-chain data shows that most of the selling pressure at the $28,000 level was from short-term holders that held their Bitcoin from one to six months. Also, most sales were from those who hold 100-1,000 BTC in their wallet, according to CryptoQuant data.
When it comes to investing, the adage is to follow the smart money. New users and mid-sized investors are the ones selling now. I’m not concerned about that. The experienced and big foot investors are staying the course and playing the long-term game.
Take MicroStrategy (MSTR), for example. It purchased another 6,455 BTC for roughly $150 million over the past five weeks.
Those recent purchases bring the company’s holdings up to 138,955 BTC, with an average entry price of $29,817 each. Its total holdings are worth roughly $3.88 billion at the price of $27,900.
This brings MicroStrategy’s break-even price to $29,817. There is some concern that investors like MicroStrategy may sell some of their holdings once they’ve hit that break-even point to recoup capital after experiencing a prolonged bearish market.
But more on that in a bit.
Switching to our other market leader, Ethereum (ETH, “B”) and its Layer-2 solutions are in the spotlight in a big way.
The most popular Optimistic rollup network, Arbitrum, has launched their governance token with a record-breaking airdrop last week. And earlier today, Polygon (MATIC, “B”) launched its long-awaited zero-knowledge Ethereum Virtual Machine network, which uses zk-rollups — zero-knowledge proof — to scale Ethereum.
Vitalik Buterin did the symbolic first ever transaction on Polygon's zkEVM with a message on it: "Millions of constraints for man, unconstrained scalability for mankind."
The message is to signify the importance of this solution for Ethereum’s future as a backbone of web3.
Notable News, Notes & Tweets
• Fidelity has launched BTC and ETH trading for all clients and the Nasdaq is about to offer crypto custody by the end of Q2.
• $8 trillion of bank deposits were uninsured at the end of 2022. This is a 41% increase from 2019, according to FDIC/Wall Street Journal.
• The Federal Reserve balance sheet expanded by $392 billion in the past two weeks, undoing two-thirds of the quantitative tightening done in the last year.
• Montenegrin police have charged Do Kwon, founder of Terra Labs, for forging official documents after arresting him at Podgorica airport.
• Arthur Hayes said Bitcoin won't hit $1 million in 90 days, but thinks it can still hit that psychologically important level in this cycle.
What’s Next
As anticipated, Bitcoin is undergoing a correction following its significant surge. Interestingly, the negative news surrounding Binance has arrived at a timely moment to assist with the market's correction.
We’ll see how deep the correction will be as it gets influenced by Binance ongoing news.
As I alluded to earlier, the price range of $29,000 to $30,000 represents a significant obstacle for Bitcoin, both from a psychological and technical standpoint. This is because holders who purchased Bitcoin at this price range may see that as a chance to break even after experiencing a prolonged bearish market.
As a result, Bitcoin will likely need to undergo several corrections and attempts before successfully breaking through this resistance level.
Still, when considering the macro level and long-term time frame, Bitcoin is still looking bullish.
Best,
Marija
