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June 2, 2021

The DFi Labs Wrap

CRYPTO ASSET MARKET PERFORMANCES

BTC plunged on Saturday, reaching a one-week low of $33,425, after plunging about 36 percent in May, its worst monthly performance since September 2011.

Bitcoin’s plunge also spread to other cryptocurrencies, which endured a torturous few weeks as fears of a bear market gripped the industry.

Prices for smaller cryptocurrencies remain mixed – some, such as XRP (Ripple) and Cardano have recovered, while others, such as Dogecoin, Stellar and Litecoin, have failed. Ether – the second largest cryptocurrency after Bitcoin, and the backbone of many popular non-fungible
token (NFT) transactions – has fared better.

Investors and traders remain positive on cryptocurrencies despite such a massive plunge. Bitcoin is notoriously volatile and despite the plummet in May, the price has risen by over 25% this year. The cryptocurrency market has seen several waves of gains and losses in the past two weeks. However, anyone who invests in cryptocurrencies knows that dramatic price fluctuations are normal in cryptocurrencies. When Bitcoin was hitting all of these milestones, it faced periods of severe volatility.

For example, when the virtual coin jumped to $30 in June 2011, only to plummet to $2 in November of the same year. Similarly, in 2017 it soared to almost $20,000, only to collapse to the $3,300 level in less than a year. These examples show that the cryptocurrency market is highly volatile, not just for Bitcoin but for all the other “alternative coins” that have emerged in its wake.

BITCOIN PRICE AND VOLATILITY

As unstable as cryptocurrencies are, it is important that you consider it in the context of the potential rewards that may be available. The potential to rake in significant sums is perhaps the greatest attraction to many investments in cryptocurrencies. This volatility is also likely to decrease over time as the blockchain becomes more widely used. This increases the demand for utility, and thus the value as a currency.

Furthermore, the number of new entities entering the network is growing, i.e. new investors. This is also a good sign of recovery. New demand is being drawn in by the lower prices. Another interesting theme is to see long-term holders and accumulation addresses piling up in this decline. Long-term holders have been accumulating steadily. An accumulation address is defined as an address that has received at least two BTC transactions, but has never moved funds out of that address. This queue continues to climb, with 7,430 new accumulation addresses in the last 7 days.

Bitcoin Manipulation? Wyckoff Analysis :

Meanwhile, the supply held by entities with 0.001 BTC to 1 BTC continues to grow. In general, it appears that retail investors are accumulating while whales are selling off. Indeed, the recent decline we have seen in Bitcoin appears to be a feature of the institutional print of the Wyckoff distribution price model. The purpose of the distribution model is to make it possible for institutions to sell large amounts of cryptocurrency while maintaining retail interest through occasional price manipulation. The main goal of the distribution model is to deplete retail demand, which is exactly how many people feel when bitcoin bounces between the high 50s and low 60Ks. If we look at Bitcoin on a daily chart, we can clearly see that all points in the Wyckoff distribution pattern are present.

DISTRIBUTION SCHEMATIC: WYCKOFF EVENTS AND PHASES

There is a reasonable chance that the large institutions and whales were behind the recent
decline and have leveraged their vast clout in the market to take advantage of retail investors. It is very profitable when every trader relies on the same patterns and indicators and someone comes in and disrupts the market, pushing prices above or below what people expect. This is something Richard Wyckoff noticed over 100 years ago when he was working on Wall Street with financial giants like JP Morgan and Charles Dow. Back then, ordinary retail traders were constantly being undermined by institutions and big investors who would manipulate prices and essentially scare them away from stocks and commodities. To be clear, Wyckoff’s approach was not that large investors were conspiring together to manipulate the market; all they were doing was taking advantage of the market conditions they saw. In Wyckoff’s own words, they are following their own set of trading rules, rather than looking at behaviour or patterns, and they are simply looking for areas that are packed with investors waiting to buy or sell.

They know that most people who invest in cryptocurrencies are consumed by fear and greed. They know all the patterns that seasoned cryptocurrency traders are looking for and how to manipulate them out of their positions, even as the market bleeds and fakes fly, institutional investors are buying down, and as Alex Becker points out, over $5 trillion was pulled and put
back into the cryptocurrency market in just a few hours, which is not normal market behaviour, which is far more than retail investors could possibly afford, these are the footprints of compounders and institutional investors are playing by their own set of rules.

However, regardless of who exactly is buying/selling, the market, in general, is no longer selling coins at a loss – SOPR is showing a significant increase. In a bull market, SOPR resets to 1 and usually rallies immediately. The reason behind this is that when people think a bull market is in place, they rarely sell at a loss. The opposite is true for bear markets.

On the corporate side, both Apple and PayPal have hinted at future plans to expand their
cryptocurrency capabilities. The tech company posted a job opening for business developers in the alternative payments space. The job posting quickly became the talk of the cryptocurrency community as it said that 5+ years of experience in the cryptocurrency space or other
alternative payment space was required. Apple is looking for business developers with
cryptocurrency experience, leading many to speculate whether Apple Pay will look to support cryptocurrency payments.

PayPal will let customers withdraw cryptocurrencies. The company’s head of blockchain, Jose Fernandez da Ponte, announced at a conference that a cryptocurrency withdrawal feature is in the works. PayPal currently allows users to buy, sell and hold cryptocurrencies within its app, and has also introduced ‘checkout with cryptocurrency’. This new feature will allow users to transfer their cryptocurrency holdings from PayPal’s platform to any third-party wallet, increasing the utility of their PayPal cryptocurrency holdings. Consumer interest in cryptocurrency payments is on the rise, and payments companies are gearing up for their own claims in the market. More payment companies are entering the space to capitalise on this growing demand. Visa and MasterCard have been adding to their crypto card portfolios, and FIS recently announced a partnership to launch a range of crypto debit cards in Europe.

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