Up until the start of this week, Bitcoin (BTC) had been demonstrating record-low volatility, and this gave altcoins enough latitude to paint some nice technical setups.
At the same time, on-chain data and technical analysis were beginning to suggest that BTC was midway through carving out a bottom, and many analysts believed that brighter days lay ahead.
Fast forward to the present, and the volatility spike the market received actually turned out to be a black swan event.
As you already know, FTX is kaput.
Alameda Research is kaput.
BlockFi has put a stop to withdrawals, citing an inability to “operate as usual,” so it’s “pausing client withdrawals as allowed under our Terms,” suggesting that the company is also kaput.
The contagion is spreading, and the shrapnel from this Krakatoa-level event is bound to ripple throughout the entire crypto ecosystem.
At this time, it’s difficult to make a confident short-term investment thesis for assets by simply looking at the chart, and the best thing unsure investors can do is either stick to a time-tested plan or do nothing.
The most likely short-term outcome is volatility will remain high, and crypto prices will continue to whipsaw for a while.
Nobody is comfortable focusing on the potential negative outcomes that lie ahead for the crypto sector and cryptocurrency prices, but it’s every investor’s responsibility to consider the absolute worst outcomes and have a contingency plan in place.
That way you don’t freak out when shit really hits the fan.
Here are a few things to keep an eye on over the coming days.
USDT/USD vs. USDC/USD
During high volatility events, stablecoins sometimes break their peg with the dollar. If there’s some wild FUD about Bitcoin being banned, hacked or dying, stablecoins prices sometimes rise above $1.00 as traders seek shelter in assets fixed to the dollar.
During crypto black swan events, sometimes Tether (USDT) loses its dollar peg. It’s happened a number of times in the past, and usually, once the smoke clears it regains the 1:1 peg.
On Nov. 9, USDT/USD broke below its dollar peg, dipping as low as $0.97 at one point, according to data from TradingView and Coinbase. While USDT dipped below its peg, USD Coin’s (USDC) value spiked to $1.01.
While we won’t explore the unconfirmed reasons why there was dislocation between the two, the unsubstantiated rumors related to Tether and Alameda Research can easily be found on Twitter.
What’s important to note here is that panic can easily be triggered by false information, rumors and lies, so it doesn’t matter if the rumors about Alameda/Tether are completely false.
If it spreads on social media and spooks investors, they’re going to act and in this case; many will or are in the process of flipping their USDT to USDC, BTC or other stablecoins.
Similar behavior was seen during the Terra and Celsius implosion. On May 12, USDC’s price spiked from $1.00 to $1.06–$1.19, according to data from TradingView and KuCoin. On the same day, USDT’s value briefly dropped to $0.98 and $0.94.
When the price is dislocated and there are spreads across exchanges, making stablecoin conversions becomes costly and the experience of swapping from one to the other or from an altcoin to stablecoin can become unpleasant.
The USDT and USDC dollar peg is something worth keeping an eye on.
Bitcoin price expectations
The Nov. 8 sell-off finally pushed BTC’s price out of the 146-day range where the price fluctuated between $24,500 and $18,600.
This is a significant range break, and from the viewpoint of technical analysis, failure to recapture this range and increased selling could see the price slice through the volume profile gap to find support in the $11,000–$12,000 range.
Unpleasant, yes, but that’s just the current reality.
If Bitcoin is able to reclaim and hold the $18,000 handle, at least the price will back in its previous range, and that would be a good sign.
A glance at the Ether (ETH) chart reflects a similar set-up where ETH dropped out of a 148-day range between $2,000 and $1,250, but the price has already reclaimed the previous range.
Bearish traders have a downside target in the $700 range, but it’s interesting to see how the price has rebounded to trade back around $1,250.
Related: Genesis Trading reveals $175M of funds are locked in FTX
The market is searching for firmer footing
A lot of crypto-focused companies and investment groups have exposure to FTX and Alameda research, which also means these same companies now have some holes in their own balance sheets.
Companies with exposure to #FTX
-Sequoia Capital – $213.5 million exposure
-Galaxy Digital – $77 million exposure
-Crypto.com – Less than $10 million
-Amber Group – 10% funds
-Kraken – exposure to 9000 FTT
-Multicoin Capital – 10% funds
-Selini Capital – 3% of their funds
— Being Satoshi (@BeingSatoshi) November 10, 2022
A handful of these crypto-native companies also hold significant-sized bags of assorted altcoins and decentralized finance (DeFi) tokens. To salvage the current losses, make good on their own loans, and meet their client obligations, it’s possible that a number of these BTC, altcoin and DeFi token stashes could find their way to being market sold on spot exchanges.
Altcoins are already down badly, and some are relatively illiquid, meaning a sharp increase in selling could put strong downward pressure on price.
Before buying what looks like once-in-a-life-time dips and cycle bottoms, investors should dig around and take a closer look at who are some of the majority holders of the token/project and remember that FTX’s multi-billion-dollar implosion is yet to be fully felt throughout the sector.
Now is the time to research and do due diligence before making any investment in any cryptocurrency.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter author at Valideapp. Each Friday, Big Smokey will write market insights, trending how-tos, analyses and early-bird research on potential emerging trends within the crypto market.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Valideapp.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.