Crypto Ecosystem

How Bitcoin reacted to intensified recession concerns

, May 4, 2023

In this week’s crypto highlights, we explore the price movements of BTC, FIL, AVAX, and BAL. Additionally, this recap includes other notable industry news items that occurred over the last seven days. Without further ado, let’s dive into the latest market developments.

Noteworthy market events

The FDIC alleged Cross River is using “unsafe” banking practices

On April 28, the Federal Deposit Insurance Corporation (FDIC) issued a consent order to crypto-friendly Cross River Bank, alleging it engages in “unsafe” and “unsound” banking practices. The regulator requested that the institution “self-correct” and appropriately address weaknesses in its lending activities. Despite accepting the consent order, Cross River has yet to confirm or deny the allegations.

Cross River Bank is considered one of the largest crypto-friendly banks. It works with Coinbase and Circle. In a conversation with Bloomberg, a Cross River spokesperson noted that the order would not have a “meaningful impact” on business. “Many of the enhancements” required under the order “have been completed or will be completed in the coming months.”

Circle released a new method for moving USDC between blockchains

On April 26, stablecoin issuer Circle announced that its Cross-Chain Transfer Protocol (CCTP) became available on the mainnet. Additionally, the system enables the permissionless transfer of USDC natively across supported blockchains. Initially, the solution was implemented for Ethereum and Avalanche.

When a transfer is requested, CCTP burns the amount of USDC specified by the user on the source chain, and recreates the same number of coins on the destination network. According to developers, the solution simplifies multiple use cases for the stablecoin, including depositing on decentralized exchanges (DEXs) on different networks, cross-chain purchases, and swaps.

Polygon Labs launched a bridge between Polygon and zkEVM

Polygon Bridge for zkEVM offers nearly the same user interface as its proof of stake (PoS) counterpart. Developers also made a number of improvements, empowering users to achieve relatively fast finalization. 

After initiating a transaction through Polygon Bridge, the connected token will be automatically matched. In other solutions, this process could involve a similar manual step, which can take hours, or even days. As such, with Polygon Bridge, it can now take 30-60 minutes to transfer funds to Ethereum, except under abnormal network conditions.

The cross-chain bridge supports ERC-20 and ERC-777 tokens. The teams of Lens, Balancer, Ankr, Alchemy, Sequence, and The Graph are already working on its integration.

Bahamas regulator tightened rules for crypto companies

The Securities Commission of the Bahamas (SCB) submitted the Digital Assets and Registered Exchanges (DARE) bill for public consultations. The bill was revised after the collapse of FTX. The DARE bill is expected to come into force at the end of Q2 2023.

The document reflects more stringent rules for crypto-related activities. Specifically, DARE 2023 expanded the definition of “Digital Business Activities” to include offering financial advice on digital assets, digital asset derivatives activities, blockchain node operation, and staking services.

The bill also defines stablecoins, describes acceptable asset reserves, and contains rules about reserve management, including segregation and redemption. The law excludes algorithmic coins. Non-fungible tokens (NFTs) are identified as either financial or consumer assets, with the former falling within regulatory jurisdiction.

One sentence news

  • Kraken filed a lawsuit against the U.S. Internal Revenue Service (IRS), which required the platform to provide user data, calling the agency’s demands an “unjustified treasure hunt.”
  • Binance.US terminated an agreement to acquire the bankrupt crypto broker Voyager Digital, due to the “uncertain regulatory climate in the U.S.”
  • Curve Finance deployed the crvUSD stablecoin, which has a design similar to MakerDAO’s DAI, on the Sepolia testnet before launching on the Ethereum mainnet.
  • PayPal said that Venmo users will soon be able to transfer cryptocurrencies between Venmo wallets, to PayPal accounts, and to external wallets/exchanges.

BTC closed the fourth green monthly candle in a row

The largest economies, the U.S. and China, published economic data for the first quarter of 2023, and this information intensified talks on wider markets about a potential recession. U.S. gross domestic product (GDP) slowed to a 1.1% gain, below the 2% estimate. At the same time, China published mixed data, pointing to a contraction in manufacturing.

Furthermore, the U.S. debt ceiling issue remains unsolved. U.S. Treasury Secretary Janet Yellen tried to encourage officials to find a solution, warning that the country may run out of cash next month. Although this question will be debated next week, the Wall Street Journal reported that there was almost no progress toward reaching an agreement.

If this was not enough, the U.S. banking system also experienced the second-largest bank failure in its history. First Republic Bank collapsed, and its assets were snapped up by JPMorgan. Soon after that, there was a sell-off in shares of other regional U.S. banks. On May 2, Telegraph published an article, stating that almost half of 4,800 U.S. banks could be potentially insolvent. 

Due to the surrounding negativity, Bitcoin failed to sustain above $30,000, and temporarily dropped below $29,000. Despite this, Bitcoin managed to complete April with a 3% price gain, showing the fourth green monthly candle in a row.

Such market performance corresponded with previous cycles (green circles), indicating the potential movement out of a bear market. However, Bitcoin soon experienced prolonged consolidation, or even correction. This hints that BTC may struggle with sustaining upward movement in the following months.

According to Coinglass, May has been the worst-performing month for BTC over the last two years. Technical analysis also supports the narrative that a price correction has the potential to continue.

Although Bitcoin is trading inside an ascending channel on a daily chart (yellow channel), the daily RSI is still in a downtrend, forming a bearish divergence. In addition, the asset is arguably forming a Head and Shoulders pattern inside the channel, which also typically hints at the following downside movement.

If the BTC price drops below the lower border of the channel, it could push the asset to the $24,500 support level (corresponds to the pattern’s height). The 20-day EMA and the 50-day SMA are on the verge of a bearish crossover, which also indicates that sellers have been gaining more recent momentum. However, if BTC manages to move above $31,600, this could potentially invalidate the bearish view.

FIL may soon move out of the narrow trading range

On April 27, the Filecoin ecosystem introduced Filecoin Web Services (FWS), a decentralized alternative to cloud services such as Microsoft Azure and Amazon Web Services (AWS). According to the FWS blog, the new platform contains a set of computing and storage technologies, which are suitable for a wide range of use cases, including the deployment of decentralized applications (dApps).

The FIL price continued to consolidate between 0.5 and 0.618 Fibonacci levels. Bulls managed to defend the 200-day SMA several times, indicating that there could be increased demand on lower levels. The point of convergence between the resistance line (white line) and support area (blue line) is growing closer, hinting that a decisive movement may follow soon. 

If the price breaks the resistance line, it could push the asset to the $6.70 level, which corresponds to the 0.382 Fibonacci point. In case of a breakout below the 200-day SMA, bearish movement may see increased momentum, potentially heading to the $4 area. 

AVAX is testing the ascending support line

The Avalanche platform team successfully activated the Cortina hard fork on the mainnet. The update included the migration of one of Avalanche’s X-Chain to the Snowman++ consensus mechanism. This provided the integration of the Avalanche Warp Messaging service, and broader exchange support.

Shortly before that, the AVAX price rejected the $21.60 resistance area (green line), and moved to the ascending support line (blue line) near $16.60. The daily chart hints at the continuation of downward movement. MACD lines moved below the zero line, while the 20-day EMA crossed the 50-day SMA from the top to the bottom. Earlier, situations like these (red circles) preceded price slides.

However, on a four-hour chart, the asset formed a positive crossover of MACD lines, meaning there is room for a potential rebound from the ascending support line. If the price drops below $16.6, this could reestablish bearish movement, potentially driving the price to $14. In case of a rebound, the $18.35 level could act as the closest target. 

BAL experienced a bullish divergence

After moving inside an ascending channel for more than a month, the BAL price rejected the $7.62 resistance level, and dropped to the 0.786 Fibonacci point. However, a four-hour chart hints that this could be the potential final destination of existing price correction.

The asset formed a bullish divergence (blue lines), which could support upward movement. In addition, RSI moved to positive territory, while MACD is on the verge to cross the zero level. If the price manages to sustain above $6.08, this could help bulls drive it to $6.25 and $6.51 levels.

However, if the 0.786 Fibonacci point is broken, this could indicate that there is not enough demand from the bulls, pushing the asset to $5.42.

Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

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Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.

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