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DeFi and Credit Risk

Good morning, and thank you for visiting First Mover. This is what's going on this morning:

Market Movements: A falling yuan might increase risk aversion, putting more selling pressure on asset markets, including bitcoin. The ether possibilities appear to be inexpensive.
Bitcoin's three-day chart is negative. Chartist's Corner: Bitcoin's three-day chart is bearish.

Also, at 9:00 a.m. U.S. Eastern time, watch the CoinDesk TV show "First Mover," hosted by Christine Lee, Emily Parker, and Lawrence Lewitinn.

Kevin O'Leary, chairman of O'Shares ETFs and co-host of "Shark Tank" Cheyenne Ligon, CoinDesk's U.S. regulatory correspondent Lily Zhang, Huobi's chief financial officer

Changes in the Market

Bitcoin (BTC) remained unchanged as the Chinese yuan's depreciation threatened to exacerbate risk aversion in global financial markets.

After a 2 percent slide to psychological support on Thursday after hawkish comments from Federal Reserve Chair Jerome Powell sent equities lower, the leading cryptocurrency by market value changed hands above $40,000.

The yuan (CNY) dropped to 6.5050 per US dollar, its lowest level since July 2021, and was on track to lose 2.5 percent this week. According to data provider TradingView, this is the largest single-week percentage drop since August 2015.

"Take a look at the Chinese yuan over the last few days. Rapid deterioration. Lockdowns, slower GDP growth, and the collapse of Japan's currency are all part of the picture. A yuan that is rapidly weakening is a risk-off signal "True Insights' founder and research head, Jeroen Blokland, took to Twitter to express his thoughts.

According to some analysts, including Otavio Costa of Crescat Capital, the yuan could continue to fall as China faces a catastrophic economic crisis and has to devalue its currency substantially.

Traditional markets have experienced tremendous volatility in the past when the yuan was devalued. In August 2015, for example, the S&P 500 plummeted 6.2 percent, marking a 10-month low as the yuan devalued by 2.5 percent. Stocks saw similar volatility in the three months leading up to January 2016, as the yuan's depreciation accelerated.

Bitcoin is vulnerable to a yuan-induced shake-off on Wall Street due to its rising link with stocks. Futures on the S&P 500 pointed to a negative open at the time of publication. On Thursday, the index dropped over 1%.

Prior to 2020, bitcoin has historically performed well during periods of yuan weakening. Chinese investors may have diversified into bitcoin to protect themselves from the volatility of fiat currencies. However, given China's ban on bitcoin, they may have a difficult time doing so today.

Bitcoin's popularity among ordinary people is diminishing.

According to Google Trends, the global search value for bitcoin has dipped to 17, the lowest since mid-2020, after peaking at above 70 a year ago.

Google Trends is a popular tool for determining public or retail interest in hot topics. A number of 100 denotes peak retail interest, which is commonly seen at market peaks.

The most recent low reading shows that the general public has lost interest in the top cryptocurrency and is no longer searching the web for information about it.

Perhaps the froth in the retail sector has dissipated, leaving the market in a much healthier state. Shaurya Malwa of CoinDesk has the full story here.

The ether possibilities appear to be inexpensive.

In the current low implied volatility environment, traders find ether options — derivative contracts that give upside and downside protection – inexpensive.

In a Telegram chat with CoinDesk, Samneet Chepal, quantitative analyst at the digital asset investing business LedgerPrime, said, "In my perspective, it makes sense to buy options [call and put] given minimal volatility." "The IV is quite inexpensive, owing to bumpy market behavior, which causes traders to be more comfortable in selling vol, as well as the influence of systematic selling from DeFi option vaults."

Bitcoin Under Pressure; Support at $37.2K

Bitcoin's three-day chart is bearish, with the Ichimoku Cloud resistance being rejected and the MACD histogram crossing bearish.

The trend line connecting the lows of January 22 and February 24 could provide support at $37,200. For the bulls, the recent high of $43,000 is the target.

Bitcoin's three-day chart with Ichimoku cloud and MACD histogram. (CoinDesk, TradingView)

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Nelson Wang.