The GBTC Bleed | How It Makes Bitcoin More Bullish.

SEC Reignites Legal Battle, Alleges Coinbase Contract Exchange ‘Illegal’

The Securities and Exchange Commission (SEC) found itself in the courtroom once again on Wednesday, this time locking horns with the centralized exchange giant Coinbase. U.S. financial regulators were levelling allegations that Coinbase was violating the law by acquiring approximately a dozen cryptocurrencies, which the SEC contends constitutes contract swapping—where the exchange procures these assets and subsequently shares them.

While both parties agree that the cryptocurrencies in question are not securities, the SEC argues that the actual transactions themselves, treated as a contractual swap, bring them under the umbrella of securities. The concept of an investment contract, a crucial element of the Howey Test employed by the SEC to determine the security status of an asset, becomes pertinent when the expectation of profit is tied to the efforts of the party selling the asset.

In simpler terms, if a company or investors purchase an asset with the intent of making a profit, and that profit is reliant on the efforts of the selling party, it may be categorized as an "investment contract" and thus considered a security under U.S. securities law. Coinbase contends that these investments hinge on secondary-market trades without a formal contract, making them ineligible to be classified as securities.

Judge Katherine Polk Failla, presiding over the case, has yet to render a decision. The SEC's legal team implies that the computer code itself is a pivotal factor in determining security status, while Coinbase asserts that the absence of a formal contract precludes the assets from being labelled as securities. Coinbase argues that no decision should be made until Congress provides clear guidance on the relationship between cryptocurrency and securities.

A ruling against the SEC in this case could pose challenges for the regulatory body in its broader efforts within the cryptocurrency space. The SEC's previous setback occurred when a high court judge ruled against them last year, declaring that XRP was not a security. Judge Polk Failla is expected to deliver a verdict in the coming weeks, potentially influencing how the SEC approaches other cryptocurrency exchanges in the future. This all comes in the same week that Ripple has faced further legal challenges from the SEC.

Grayscale's Bitcoin Spot ETF Bleeds Funds, Rivals Thrive in Surge

The prominent digital currency investment firm Grayscale has witnessed substantial outflows from its recently launched Bitcoin Spot ETF, experiencing a staggering $1.5 billion exiting the GBTC fund within the last week. Analysts speculate that investors who had previously acquired the discounted GBTC shares before the ETF conversion are now selling in considerable numbers to capitalize on profits. This significant sell-off is believed to be a key factor contributing to the recent decline in Bitcoin's value since the ETF's inception.

Another driving force behind this mass exodus might be the comparatively high fees associated with Grayscale's ETF, particularly when contrasted with other companies offering lower fees or no charges for the initial six months. Some firms wait until reaching a specific Assets Under Management (AUM) target before implementing fees, a strategy Grayscale is reportedly addressing.

J.P. Morgan, a financial giant, anticipates that more capital could exit Grayscale's Bitcoin Spot ETF in the coming weeks. Considering that $3 billion was initially invested in the previous GBTC fund, there's a possibility that the remaining $1.5 billion may exit the market. If the issue is not sorted out promptly, they could lose yet another $5 to $10 billion, as they could lose their liquidity advantage.

At the time of this writing, Bitcoin has experienced a 15% drawdown since the initiation of the new ETF, reflecting the broader market dynamics influenced by Grayscale's recent fund activities.

Trump Sounds the Alarm: CBDCs Pose Threat to Financial Privacy

Former U.S. President Donald Trump and Rep.Tom Emmer are joining forces to oppose the introduction of Central Bank Digital Currencies (CBDCs) in the United States. Emmer, currently serving as the Majority Whip in the House of Representatives, shares Trump's concern over the perceived threat to financial privacy posed by CBDCs. Trump, who has been vocal in his opposition, declared last Wednesday that, if re-elected, he would vehemently oppose the creation of a central bank digital currency, asserting that it would grant the federal government unprecedented control over individuals' finances.

Emmer has taken concrete steps by introducing the CBDC Anti-Surveillance State Act, aimed at curtailing the surveillance of individuals' financial transactions. Expressing alignment with Trump's views, Emmer highlighted the perceived threat CBDCs pose to Americans' financial privacy on social media platform X.

This collaborative stance marks a notable shift for Trump, previously known for his scepticism toward digital currencies. Intriguingly, public records suggest that Trump owns a substantial amount of Ethereum, estimated at around $2.6 million, acquired through the release of Non-Fungible Tokens (NFTs). These NFTs notably feature his infamous mugshot from his arrest in August 2023.

However, Trump's potential return to the presidency faces significant hurdles. He currently faces criminal charges related to the alleged mishandling of classified documents post-presidency, as well as a federal grand jury indictment on four charges connected to his efforts to overturn the 2020 election results. If found guilty, Trump could make history as the first sitting president serving a prison sentence, raising profound legal eligibility questions and potential challenges to his political standing.

TECHNICAL ANALYSIS

Bitcoin (BTC)

Bitcoin has maintained its bearish stance over the past week as the price of the world's largest digital asset failed to keep within the ascending trend channel. Approximately ten days ago, the price managed to break and close below it, later retesting it last Tuesday. Currently, at the time of writing, it is sitting just below daily support, indicated by the blue horizontal line at about $41,256, marked by multiple green arrows.

A break below this support is likely to lead to a larger sell-off towards the next support level at $38,450, as marked by the green-shaded pattern. This juncture is critical for Bitcoin, as there hasn't been a proper break of structure to the downside since the September 2023 lows at $24,901. The force of this upward move over the last few months has been substantial, without a meaningful pullback.

Combined with a break of the 50-day EMA, Bitcoin could finally be facing its most significant hurdle of the bull market. Previous warnings, such as a bearish RSI divergence, have been discussed. Now, looking at the monthly chart on the right, although just 3 weeks into the month, this latest candle is producing a bearish hammer candle. Uncannily price spiked the 0.618 fib level between the major all-time high of $69,000 and the November 2022 low of $15,476, standing at $48,553 the reversed. This underscores the accuracy of Fibonacci retracements in combination with fundamental news from last week. The recent monthly swing high peaked at $48,969, remarkably close to the crucial fib level.

Now, it becomes exceedingly crucial to initiate an analysis of Fibonacci levels to the downside and identify additional areas of support and interest, as illustrated in the chart below. When retracing from the major November 2022 swing low to the recent monthly swing high, recorded at $48,969 last month, it's evident that the price of Bitcoin is spiking the initial significant Fibonacci level of 0.236, standing at $41,065. This level coincides with the daily support confluence highlighted earlier in this week's analysis, as indicated by the three green candles on the daily chart.

The sustainability of Bitcoin at this current level remains uncertain. Given the increasing strength of the downward movement observed over the last week, a decisive break and close below this recent structure would signify a shift in the tide, indicating a turn in the medium-term trend towards the downside. However, it's crucial to note that this doesn't necessarily imply the onset of a bear market; quite the opposite, the primary trend remains upward until more significant downward breaks occur.

It's worth acknowledging that Bitcoin has experienced frequent retracements surpassing 20% in past bull markets. Therefore, while the current situation indicates a potential shift, doesn't conclusively signal a bear market. Monitoring Bitcoin weekly will be essential to assess its evolving dynamics and trends.

Bitcoin Dominance (BTC.D) Excluding Major Stablecoins

This week, our focus shifts to the Bitcoin Dominance chart, excluding major stablecoins. Clearly, the price is positioned on weekly support, indicated by the three blue arrows. The lead-up to and aftermath of significant fundamental news has led to extreme volatility, with price whipsawing in both directions across all major moving averages, as depicted in the daily chart below.

The RSI momentum indicator has not yet reached oversold territory, suggesting that dominance could potentially experience a further downturn. Examining the monthly chart on the right reveals a nuanced conflict between bullish and bearish indicators. On one hand, there's the completion of a bearish ascending wedge that has broken and closed to the downside. On the other hand, there's a sign of support at the 0.236 Fibonacci level at 55.54%, derived from the major May 2021 swing low to the recent monthly October 2023 swing high, which sits at 55.64%. Price is currently hovering around this area, and a drop below could lead to a descent to the 0.382 Fibonacci level at 52.97%.

Predicting whether Bitcoin will outperform altcoins in the coming months remains challenging, and we must derive insights from these charts to make informed judgments. Given the recent price instability, hitting a local top on major monthly resistance and forming a bearish hammer pattern three weeks into the current month, it appears that the path of least resistance is marginally downward. We will revisit the dominance chart soon for further analysis.

Near Protocol (NEAR)

Our final chart of the week features Near Protocol. Despite covering this asset just last week, a significant development occurred with the bearish triangle break observed earlier. This break of support prompts us to identify downside points of interest. The measured objective of the pattern, derived from the peak to the breakout point and further subtracted from the breakout to the downside, suggests a target of $1.80. While measured objectives can be inconsistent, occasionally providing impractical targets, it's worth noting.

Examining horizontal support lines, we are currently breaking support at $2.90, marked by three red arrows at the time of writing. This is followed by the next level at $2.61 (green arrow) and the more relevant support level at $2.18, indicated by three blue arrows. Each line is marked on the chart for reference. The Stochastic RSI is currently oversold, hinting at a potential short-term bounce, while the RSI momentum indicator is mid-ranging, indicating that price could move in either direction. A bearish development is the break and close below the 50-day moving average.

Turning to the weekly chart on the right, levels are derived from the October 2023 low of $0.971 to the December 2023 swing high of $4.625. The price is currently bouncing off the 50% level, which, although not a Fibonacci number, is considered due to its position halfway between the bull and bear extremes. Further downside is visible at the weekly swing low of $2.613, just above the 0.618 Fibonacci level at $2.367. Given the break of the triangle pattern, the current path of least resistance appears to be to the downside. While not definite, it is more likely that we could eventually reach support levels around the crucial 0.618 Fibonacci level. We will revisit Near Protocol if further developments unfold.

IN SUMMARY

Many cryptocurrency markets are currently showing a short to medium-term bearish trend. While it's too early to determine if a significant retracement is imminent, various indicators suggest a potential downturn. With many charts spiking weekly support levels, a swift rebound is essential for regaining a bullish momentum. The current scenario is marked by more down days than up days, indicating a bearish development. I anticipate revisiting the charts next week for further analysis.