First Mover Asia: Bitcoin stays calm at $16.5K

Prices

Bitcoin Trades Sideways, Holds Over $16.5K

Bitcoin's price barely budged on the U.S. Thanksgiving holiday.

The largest cryptocurrency by market capitalization was recently trading at about $16,500, down a mere 0.11% over the past 24 hours. BTC has been holding steady around $16,000 for the past three weeks, although it took a brief dip below $15,500 on Monday amid fears about the future of crypto trading and lending firm Genesis Global Capital, which has been caught up in crypto platform FTX's implosion.

Crypto markets calmed over the past three days, however, buoyed along with equity indexes by signs that the U.S. central bank would retreat from its current diet of hawkish 75 basis point interest rate hikes. While a number of crypto observers say the recent debacles may ultimately strengthen the crypto industry by forcing regulators to ratchet up their efforts, most analysts remain bearish prices.

Ether was recently changing hands at about $1,195, up 1.16% over the past day. Other cryptos were mixed, with Cardano (ADA) down almost a percentage point (-0.96%) and Quant (QNT) trading up 0.32%. The CoinDesk Market Index (CDI), an index measuring cryptos' performance, was down 0.26%.

Insights

FTX contagion revives dreaded 2022 crypto knell – the ‘withdrawal halt’

In the crypto industry in 2022, the phrase "halting withdrawals" is like black smoke billowing out of a building. Damage is certain.

Technically it means that a crypto exchange or lender has gated customers from being able to get their money or digital tokens back – typically because there’s just not enough assets on hand to meet redemption requests. The likely upshot, though, is that the business is unlikely to recover easily from the destruction. In many cases, a bankruptcy filing is the next step.

Now, the rapid unraveling of once-billionaire Sam Bankman-Fried’s crypto empire, including the FTX exchange and the crypto trading firm Alameda Research, has unleashed a fresh wave of crypto exchanges and lenders halting customers’ withdrawals over the past few weeks.

The collateral damage lengthens a list of casualties from the dramatic collapse of the Terra blockchain earlier this year, which accelerated or led directly to the failures of crypto firms including Celsius Network, Babel Finance, Voyager Digital and Three Arrows Capital.

The contagion can spread swiftly. When one company suddenly refuses redemption requests, another company suddenly faces a liquidity crisis. Market jitters unnerve investors, leading to further withdrawal requests, exacerbating the panic. Such is the pattern in digital-asset markets where there is no Federal Reserve or other central bank backstopping it all – as there is in the traditional financial system.

“For each player, you're going to be in this situation where all of a sudden you have to manage how much information you want to reveal,” said Benoit Bosc, global head of product at crypto trading firm and liquidity provider GSR. “It might be more information than you actually want to reveal then.”

BlockFi, Genesis

BlockFi, a crypto lender, paused client withdrawals from its platform on Nov. 10, citing the “lack of clarity” around FTX's current situation; it was two days after the FTX exchange fully halted customer withdrawals on Nov. 8. BlockFi later acknowledged its “significant exposure” to FTX.

Last week, Genesis, a big crypto financial firm, announced its lending unit had suspended redemptions and new loan originations, citing “the extreme market dislocation and loss of industry confidence caused by the FTX implosion.” Earlier in the year, the business suffered hundreds of millions of dollars in losses after Three Arrows Capital’s failure. (Genesis is a CoinDesk sister company.)

Bosc cited Warren Buffett’s oft-repeated quote: “‘When the tide goes out, you see who is swimming naked.’”

Nicholas Colas, co-founder of the market analysis firm DataTrek Research, wrote in a note that the current crisis will take time to be resolved, and “until then this space will likely see more selling pressure.”