How Bitcoin Set Itself Up for This Sell-Off

Insights, news and analysis for the professional investor

By Lawrence Lewitinn, Managing Editor for Global Capital Markets

December 5, 2021

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Bitcoin (BTC) - $49,556.51

Ether (ETH) - $4,219.92

Prices as of 12/5/21 @ 8:00 a.m. UTC

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It's the first weekend of the last month of 2021, which means the market is excited for … something. Anything. NFTs, perhaps?

With Art Basel Miami happening this weekend, non-fungible tokens (NFT) are getting their big moment in the South Florida sunshine. As our selection of podcasts this week attests, NFTs will play a big role in this space for some time to come at the very least. It's also likely a major bridge from mainstream to the decentralized, meta realm. After all, art in the form of cave paintings has been with us since the dawn of humanity. Perhaps we could think of Cro-Magnons and Neanderthals as merely different layer 1s, and DNA analysis of modern humans shows there was plenty of interoperability.

In any event, if you're in Miami, there's a 100% chance you will hear the letters "NFT" before you get to your car. That's how the future we have all been waiting for starts.

– Lawrence Lewitinn

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The Briefing

"Okay, so now what?" That was basically what the bitcoin market was saying over the past few weeks. Then a sell-off in the spot market over the weekend triggered several hundred million dollars' worth of futures liquidations that helped to send prices plummeting further.

Ever since the massive rally culminating in the all-time high of $68,990.90 on Nov. 10, prices came down and stayed south of $60,000 over for the most recent couple of weeks. Some of the hype, it seems, was related to the bitcoin futures exchange-traded fund (ETF) launch, and the subsequent letdown seems likewise to reflect a market that doesn't know what to do next.

Look at the ProShares Bitcoin Strategy ETF (BITO), which hit the market Oct. 19. Within two days, assets under management (AUM) reached $1.2 billion and spot bitcoin was up over 50% from the previous month.

Anticipation had been building for several weeks that the U.S. Securities and Exchange Commission (SEC) was going to allow some sort of a bitcoin-based ETF to start trading, which it did on Oct. 15.

Thanks And then … meh.

The first bitcoin futures ETF's AUM was valued around $1.4 billion as of Friday. That's roughly how much it was when bitcoin prices peaked. What's interesting to note is that the number of shares in the ETF, which trades like a stock, has grown steadily since launch with only a couple of net declines. On Oct. 21, it was just shy of 30,000 shares while now it's a little less than 40,000.

That tells us there was a growing interest in holding bitcoin, but it wasn't gangbusters like it was a couple of months ago.

Read the full column here.

– L.L.

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Chain Links

Badger DAO was struck by a front-end attack in which $120 million in user funds was stolen. TAKEAWAY: Attack vectors in decentralized finance (DeFi) continue to emerge, as the industry is still in its youth. The stolen funds were a result of a compromised website or front end and not a bug within the protocol's smart contracts. Smart contract insurance protocol Nexus Mutual announced that it would not cover the exploit.

Jack Dorsey's payment giant Square changed its name to Block. TAKEAWAY: While not explicitly mentioned, the company is likely going to focus more closely on delivering bitcoin and blockchain-based services. The announcement came just days after Dorsey stepped down as the CEO of Twitter, showing that Block will likely be his largest priority.

Marathon Digital expanded its hosting agreement to 100,000 bitcoin mining machines, helping the company become 77% carbon-neutral. TAKEAWAY: Marathon Digital is one of the largest U.S.-based mining companies and is looking to bring an environmentally friendly approach to proof-of-work mining. The announcement is a positive sign that miners are reinvesting into the crypto ecosystem and creating more sustainable infrastructure for the future.

Certik, a blockchain audit firm, raised $80 million at around a $1 billion valuation. TAKEAWAY: Certik has 20x annual revenues and raised $140 million over the past year, highlighting the demand for high-level smart contract auditors. The company helps blockchain applications and protocols prevent exploits through audits, security rankings and attack monitoring.

FTX.US officially launched Ethereum NFT trading on its centralized marketplace. TAKEAWAY: OpenSea's initial NFT mania left many market participants priced out because of Ethereum gas fees. FTX.US sees opportunity in creating more liquid and efficient markets for NFTs, while also undercutting OpenSea's trading fee by .5%.

– Teddy Oosterbaan