Chinese Crypto Scam Unwind Suggests Bitcoin Risks Extending Drop
Comment of the Day

December 17 2019

Commentary by Eoin Treacy

Chinese Crypto Scam Unwind Suggests Bitcoin Risks Extending Drop

This article by Olga Kharif and Zheping Huang for Bloomberg may be of interest to subscribers. Here is a section: 

Chainalysis estimates that PlusToken conspirators have sold about 25,000 Bitcoins and another 20,000 Bitcoins are spread out across more than 8,700 anonymous crypto addresses. Additional coins such as Ether were also used to bilk investors.

“That’s certainly something to consider when you are thinking about where the price is going, at least in the short term,” Kim Grauer, senior economist at Chainalysis said in a phone interview. “It could be, according to our research, continued downward pressure.”

Eoin Treacy's view

Bitcoin and the other cryptocurrencies do best when there is a clear supply inelasticity argument. The liquidation of the Mt. Gox bankruptcy hoard was a significant contributing factor in the decline posted in 2018 and the unwinding of the PlusToken stash may be a factor in the current downtrend.

In the history of bitcoin halvenings (when the reward for mining halves) have historically been bullish phenomena because they focus investor attention on the limited supply argument. The next halvening is expected in July 2020. On previous occasions the price has rallied meaningfully heading into that event so the current downtrend is something of an anomaly and not least because of its consistency.

The Bitcoin price encountered resistance at successively lower levels from the June peak near $14000, with each high being $1000 below the last monthly peak until October. The pace of the decline picked up in November with the next lower peak being $2000 below the October peak. The price is now breaking down again to reassert supply dominance.

Ripple, which had exhibited clear relative strength in 2018 is now breaking down to new lows and hasn’t traded at these levels since before the bubble in 2017.

Ethereum is falling back towards the lows posted in December 2018.

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