Blockstream Markets Weekly — May 21, 2021

Doom and gloom galore this week…China bans, Elon fans environmental criticisms, Biden beefs up the IRS and record forced sells as Bitcoin posts the biggest price drop since last year’s liquidation cascade. Cheer up…It’s Bitcoin pizza day tomorrow!

By Jesse Knutson

What’s happening in the markets?

Hodl the line!

Bitcoin is on pace to end the week -12%, recovering off of an intraweek drop of -35%. Declines over the previous two weeks have now wiped out four and a half months of gains.

The sell-off looks to be largely technical though selling seems to have been exacerbated by a slew of negative headlines and the usual forced selling of overly leveraged positions.

Liquidations saw price crash deep into oversold territory with the RSI cratering to a low of 23, price falling to -3.4 standard deviations below the 50-day moving average, the fear and greed sentiment index plunging into extreme fear, and volume surging to a 127-day high.

Bitcoin has bounced pretty hard from the intraweek low but may take some time to regain its footing. Broader market moves look supportive of a Bitcoin recovery, though, with the USD continuing to soften, global equities on pace to squeeze out a gain this week and inflation concerns continuing to make headlines.


News flow this week were dominated by fear, uncertainty, and doubt.

Negative stories this week included the return of China Bitcoin bans, reports Biden plans to beef up the IRS and crackdown on crypto, Guggenheim calling Bitcoin tulips (despite a previous $600,000 target price), and more Elon Musk inspired environmental criticisms from the Financial Times and others.

Outside of FUD, there were a few spots of positive press, including BlockFi teaming up with Blockstream for Bitcoin mining services, Kraken raising funds at > $20 billion valuation, and Ark’s Cathie Wood reaffirming her belief that Bitcoin will eventually reach $500,000.

Most importantly, though, Papa John’s is giving away 10,000 pizza slices to celebrate National Bitcoin Pizza Day. Look how far we’ve come.

Funding reset

The last leg of Wednesday’s drop looks to have been driven largely by forced sells and was reminiscent of the March 2020 liquidation cascade that sent Bitcoin to the $3,800 level.

This is a result of the generally high leverage employed by retail traders in the market. Earlier this year Binance said that 80% of their users trade at 20x leverage or more. Aggressive leverage amplifies Bitcoin’s already high volatility causing steep drops to follow steep drops.

Most of the recent leverage has been concentrated in super high beta altcoins. Wednesday’s drop saw a total of more than $12B worth of forced sells across the space in a 12-hour span and almost 900,000 traders getting liquidated.


The correction this week marks one of the largest 20-day drops on record. From 2014 to present, there have only been seven larger 20-day drops .

Looking back at the top 20 drops over that time period, ~80% of them were followed by gains in the following few weeks. The median 20-day gain is 25% the median 50-day gain is 37%.

Interestingly, the median 5-day gain is up 12% from the close which translates roughly to the current ~ $41,000 price. The median 50-day gain translates to ~ $51,000.

Psychological damage

I think it’s important to zoom out a bit and think about the psychology of this correction. According to Glassnode, more short-term holders (those who have held Bitcoin less than 155 days) went underwater this week than at almost any other time in recent history.

My guess is a decent-sized chunk of this is retail money chasing momentum with a low general understanding of Bitcoin (like Elon Musk, but not as wealthy) and a much lower threshold for pain than the savages that have survived a couple of cycles.

Many will be tempted to cash out when the price gets back above some of the key moving averages and back around the aggregate entry price of short-term holders.

The bounce off of this week’s low probably still has legs, but I would expect significant resistance around the $45,000 — $50,000 level. I think that likely means a period of consolidation as we digest the technical damage wrought on the market this week.

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Bitcoin markets news

BlockFi picks Blockstream for mining colocation services

  • BlockFi has deployed miners at the Blockstream mining facility in Georgia, USA, with access to over 300MW of power capacity
  • In March Blockstream teamed up with Galaxy Digital to host their Bitcoin mining operations, in addition to a partnership with Aker to pursue alternative energy mining operations
  • Many more in the pipeline…!

JPM sees mean reversion in Bitcoin to gold trade

  • JPM had previously highlighted BItcoin was sucking up gold fund flows and said that ‘Bitcoin would make gold suffer for years’
  • Looks like we’re probably seeing some mean reversion in that trade

Ark’s Cathie Wood: Bitcoin will still hit $500,000

  • Thinks that Bitcoin mining offers renewable energy a new ‘profit center’ and could accelerate the adoption of solar power
  • Says Bitcoin entered into a capitulation phase

Elon tells Ark that audits could solve Bitcoin energy concerns

  • Tesla CEO Elon Musk said Thursday that audits of renewable energy used by large Bitcoin miners could help ease concerns about Bitcoin’s environmental impact
  • It’s a bit shocking that Tesla approved a $1.5B investment with apparently very little due diligence being executed

China bans are back

  • China has probably been banning Bitcoin in various ways longer than most people have even known about Bitcoin
  • This time around its banning financial institutions and payment companies from providing services to cryptocurrency transactions (this may have actually already been banned)
  • Regulators also issued warnings against speculative crypto trading

Biden plans crypto report crackdown and beefed up IRS

  • The Treasury Department on Thursday outlined a plan to raise $700 billion over the next decade to help fund the administration’s record stimulus spending
  • Would require financial service providers (including custodians and trading platforms) to report account flows to the IRS and requires businesses to file transaction reports on crypto payments fo $10,000 or more
  • Kraken and Coinbase alone have more than 60 million users, I’m sure there will be quite a bit of push back and lobbying around this

Kraken raise said to top $20 billion valuation

  • Article says Kraken has plans to IPO next year and has been raising fresh funding as they seek a valuation above $20 billion

Guggenheim CIO says Bitcoins are tulips (after earlier $600,000 PT)

  • In December, Scott Minerd looked for a target price of $400,000–600,000

“Our fundamental work shows that Bitcoin should be worth about $400,000…It’s based on the scarcity and relative valuation such as things like gold as a percentage of GDP. So you know, Bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transactions.”

TSMC breaks the limits of Moore’s law with sub 1nm chips

  • The breakthrough was released as a joint announcement between MIT, National Taiwan University and TSMC
  • Moore’s Law states that the number of transistors on a chip doubles roughly every two years while the overall cost of that computing power halves
  • IBM recently announced the world’s first 2nm chip technology that could quadruple smartphone battery life, cut the carbon footprint of data centers, speed up laptops, contribute to higher-performing AI applications…and mine Bitcoin more efficiently
  • While the breakthrough likely widens the gap between TSMC and everyone else, commercialization is probably at least a decade away


The top 20-day dips

  • The dip this week was one of the largest 20-day drops in recent history (2015 to present)
  • Big dips are usually followed by big bounces

Short term holders are underwater

  • Short term holders are defined as those holding Bitcoin for 155 days or less
  • A drop below 1 indicates they are, as a group, underwater
  • Since 2015, we’ve only seen levels this low three times: the start of the 2018 bear market, the 2018 capitulation and the March 2020 COVID sell-off

Chart credit Julien Bouteloup

JPM sees Bitcoin to gold mean reversion

  • JPM had previously noted how ‘Bitcoin would make gold suffer for years’ in previous notes as Bitcoin pulled fund flows away from gold ETFs
  • I wonder to what degree this mean reversion has been digested after the sell-off this week?

Chart credit JP Morgan Research

Fear turns to panic

  • The Crypto Fear and Greed sentiment index plunged deep into extreme fear territory this week
  • Remains at the extreme bottom end of its historic range

Chart credit Crypto Fear and Greed

Coinbase outflows

  • This chart shows the large, persistent Bitcoin net outflows that have been coming out of Coinbase all year
  • Coinbase is thought to dominate US institutional order flow and the large net outflows are thought to indicate US institutional buying
  • Will be interesting to see what this looks like in the coming weeks

Chart credit Glassnode

That was quick

  • The previous bull market (defined by frequent new all-time highs) lasted about 365 days
  • The current one has only lasted about 200 days and change
  • This chart came out earlier in the week, so the drawdown from the ATH is marked at -28%. Later in the week it expanded to ~ 54%, still well within the bounds of pullbacks experienced during the previous cycle.

Chart credit Glassnode

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