Late last week, the amount of Bitcoin on exchanges spiked much higher after a period of decline in early November when users opted to self-custody their coins. While this was not good news for crypto exchanges, the phenomenon nonetheless showed that investors want to safekeep their Bitcoins for the long-term, as otherwise, they would not bother to withdraw the coins but would simply sell them and withdraw in stablecoins or a fiat currency.
Bitcoin Deposits At Exchanges Rising Sharply
However, things took a sharp turn late last week. The amount of Bitcoin deposited to exchanges started to rise sharply, from under 1.8 million units to over 2 million units between November 17 and 18. This inflow of more than 200,000 BTC is by far the largest increase in the number of Bitcoins sent to exchanges this year, with the number surpassing even that seen during the LUNA debacle. This speaks volumes of the magnitude of this inflow. Hence, its potential impact should not be ignored.
While some of that Bitcoin could have been sold since the exchange balance has dipped a little, most of the newly transferred coins are still sitting on exchanges, which means that the chance of Bitcoin seeing more selling pressure in the days ahead is high.
As we start the new week, the price of Bitcoin is already having trouble holding on to $16,000, with the prices of altcoins losing even more momentum and caving lower.
Possible Failure of Genesis Could Be the Cause
One possible explanation for this change in investor behavior could be the negative rumors surrounding Genesis, one of the largest institutional crypto prime brokers.
Late last week, new contagion from the FTX fallout started to surface, and this time around, it hit Genesis, which is a huge player in the crypto market making and prime brokerage space. Genesis not only executes trades for other crypto exchanges like Gemini, but also holds custody of the crypto for the convenience of their clients. Since the middle of last week, Genesis has halted withdrawals and has been looking to raise $1 billion to plug a hole in its balance sheet after being adversely impacted by the failures of Three Arrows Capital, Alameda and FTX. Market rumour has it that should Genesis fail to raise the $1 billion, the firm could follow in the footsteps of FTX and file for bankruptcy. We do not need to be a rocket scientist to be able to guess that Genesis too, may likely have used customer funds illegally as if they did not use customers funds, they would not have had to stop withdrawals even if they did have financial trouble as the customer funds would have been segregated. However, everything is still speculation at this stage until Genesis reveals more information.
The impact of a Genesis failure is huge, especially on the institutional front where large amounts of crypto could be at stake and may result in a negative domino effect from other crypto firms large and small. Firms could be forced to liquidate their crypto holdings to raise capital for survival and repay loans that are being recalled in an already depressed market and make things worse.
The inflow of the 200,000 units of Bitcoin on Friday could be from one or more of such institutions needing to raise capital, or worse still, it could be from investors who have lost confidence in the crypto market for the time being and want to sell into safety. It could also be whales trying to sell their Bitcoin before the crypto funds liquidate their positions so as to buy back at a lower price. The possibilities are many, or, they could also all be happening at the same time. Regardless, none of such scenarios are positive for Bitcoin in the near-term.
Recovering USD Dollar Could Make It a Double Whammy
To add to Bitcoin’s woes, the USD dollar is also gaining strength as currency traders reposition their dollar trades ahead of the Fed meeting minutes to be released this Wednesday. Should the dollar’s strength continue for the rest of the week, it could amplify the already bleak position that Bitcoin is in and send Bitcoin’s price lower.
Near-Term Outlook for Bitcoin Hinges on FTX Contagion
While the stronger USD dollar so far this week may play a role in weakening the price of Bitcoin, experts will not deny that the main impact would definitely come from the developments of companies affected by the FTX fallout. Word on the crypto street already estimates that the number of affected crypto entities could be at least 50, while 134 affiliate companies under the FTX umbrella have already filed for bankruptcy.
With such an unprecedented number of entities (including even DeFi protocols and platforms) affected, the ramifications could take a long time to play out. As it is, merely just two weeks into the FTX fallout, two established crypto firms, Blockfi and Genesis, have already run into survival problems. The suspension of withdrawal by Genesis has already impacted its client, Gemini’s, operations. Gemini had paused withdrawals and operations at Gemini Earn since late last week because it could not function without having access to its coins kept at Genesis. The problem at Gemini Earn could be a prelude to what could be in store if Genesis is to go belly up. Hence, the situation for the crypto space currently is dire. Genesis’s fate is now directly affecting Bitcoin and crypto in a big way. While there has been talks that Genesis had to raise $ 1 billion by November 19 to avoid having to file for bankruptcy, the date has passed and there has been no updates at the time of writing as to whether the firm has found the funding.
Our guess is that the large number of Bitcoins sitting on the exchanges is waiting for news out of Genesis to decide when to sell. This could mean that should Genesis not be able to find the funds, we could have a big troubling week ahead.
In a time like this, let us take care and trade well. Remember that markets can be traded both ways and as long as we exercise prudence and do not use excessive leverage or over trade, negative news can also provide good trading opportunities.
The above are the personal opinions of the author and should not be viewed as the official stance of the Margex platform. They are also not financial advice and should not be construed as an invitation to trade. Readers are strongly encouraged to do your own research and check your financial affordability before doing any investment or trading as these activities carry risks. Should you be in doubt, kindly speak with your personal financial advisor.