First Mover Asia: Bitcoin as digital gold and inflation hedge. Really? BTC is under water

A Sunday rally had bitcoin perched back over $20K and ether above $1.1K, but the recent Terra and Celsius debacles have increased investor anxiety about the digital assets' ability to maintain those levels.

Good morning. Here’s what’s happening:

Prices: Bitcoin Reclaims $20,000; other cryptos rally.

Insights: Old-fashioned gold is outperforming its digital version.

Prices

Bitcoin (BTC): $20,510 +8%

Ether (ETH): $1,125 +13.2%

Markets

S&P 500: 3,674 +0.2%

DJIA: 29,888 -0.1%

Nasdaq: 10,798 +1.4%

Gold: $1,840 -0.5%

Bitcoin Reclaims $20K; Other Cryptos Rebound

A Sunday rally sent bitcoin back above the $20,000 threshold it has occupied for much of the past month, but analysts remained unconvinced that the surge will have staying power.

Bitcoin was recently trading at about $20,500, up over 8% over the previous 24 hours. At one point the previous day, the largest cryptocurrency by market capitalization had fallen below $17,800, its lowest level since mid-December 2017 when Bitcoin was near the peak of a bull run. That dip also fell below the high of that up cycle, disproving a theory that bitcoin would not breach a previous cycle's high watermark.

Ether, the second largest crypto by market cap, followed a similar price pattern, tumbling to an almost five-year low below $1,000 before rising late in the weekend. It was recently changing hands at about $1,120, up more than 13% from the previous day. Other major altcoins were well into the green with LTC and AXS up more than 17% at one point.

"We had marked $19K - $20K and $16K - $17K as areas of interest, and Bitcoin bounced from the latter," Joe DiPasquale, CEO of crypto fund manager BitBull, wrote to CoinDesk. "However, unless it successfully maintains $20K with high volumes and bidding, we would not expect the rally to continue."

The tech-heavy Nasdaq closed an otherwise dreadful week for stocks with a modest 1.4% gain on Friday, while the S&P 500 ticked up a fraction of a percentage point. The S&P, which includes a sizable tech component, tumbled 5.8% for the week and entered bear market territory, meaning that it is down at least 20% from its previous high. The Dow Jones Industrial Average fell slightly.

Investors remain anxious about high inflation, which reached a 40-year high for May, continued economic fallout from Russia's invasion of Ukraine and the increasing likelihood of a global recession. Last Wednesday, the U.S. central bank boosted interest rates by the highest increment in more than a quarter-century – three-quarters of a percentage point – its latest step to stem rising prices. Other central banks have also recently raised rates amid ongoing increases in energy prices.

Meanwhile, crypto markets have also had to digest a series of debacles stretching to early May when the TerraUSD stablecoin (UST) collapsed. Last week, cryptocurrency lending platform Celsius announced it was halting withdrawals and crypto hedge fund Three Arrows Capital is facing possible insolvency after incurring at least $400 million in liquidations, according to a report. Coinbase and a number of other major digital asset exchanges have also announced steep job cuts.

BitBull's DiPasquale expects volatility in crypto pricing the next few days because of options expiries but he added that "the macro trend is likely to remain bearish until we see the Federal Reserve changing or at least relaxing its stance in July's FOMC meeting."

Insights

Analogue Gold Beats Its Digital Version

Bitcoin is called the ultimate store of value by its fans; a digital version of gold that maintains all the best characteristics of it as an inflation hedge while being more efficient and liquid thanks to blockchain technology, which the bitcoin protocol pioneered.

But as crypto faces a harsh winter, perhaps one of the worst on record with major crypto institutions on the verge of failure, faith in this paradigm is being tested.

Indeed, when compared to gold, bitcoin is more than 55% year-to-date. Gold, in contrast, is up 2.45%.

(TradingView)

And as bitcoin and ether ended the week in Asia attempting a break below $20,000 and $1,000, respectively, data shows the worst might be yet to come.

On-chain data, spotted by CryptoQuant, shows lots of bitcoin is on the move. CryptoQuant’s Ki Young Ju believes it's either crypto hedge funds that are filling up collaterals for long positions or market makers filling up liquidity to execute sell orders for their clients.

“For what it's worth, they're bearish in the short term either way,” he tweeted.

Keep in mind that just over a week ago, bitcoin was at $30,000.

Important events

U.S. Juneteenth holiday

The 4th annual NFT Industry Event (NFT.NYC)

9:30 a.m. HKT/SGT(1:30 a.m. UTC): People's Bank of China interest rate decision