Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears

November 30, 2021
Reading Time: 6 min
Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - Blog 29 11 November

News of a new “COVID variant of concern” plunged stocks which were already having a lousy week. With them went a number of other markets, including crypto which has, at times, been a safe haven in such occurrences. 

Even before the Covid news came in, earlier in the week, there was confusion among traders over reports that the Indian govt was coming out with a bill to ban all private cryptocurrencies. This rumour caused cryptocurrencies to tank en masse on all Indian exchanges, with even stablecoins like USDT also falling 17% since it is also a private cryptocurrency, albeit having its value pegged with the USD. 

The bill however, has not yet been decided upon and will be debated in the winter parliament session over the next few months. Before the market could even muster a bounce post clarity about the Indian Bill, news about the new COVID variant plunged the price of cryptos even deeper into the red. 

Stocks already started the week lower, reversing an earlier rally that came after President Joe Biden announced he would nominate Chairman Jerome Powell to continue to lead the FED, rather than nominating Fed governor Lael Brainard for the post.

While bank stocks rose, tech stocks were battered as the markets thought the reappointment would be hawkish. Treasury yields moved higher to 1.68% after the announcement, sending the USD higher. The DXY rose to 96.5 as the market predicted a strong USD and weak stocks.

However, all that action was nothing compared with what was to come. On Friday, the WHO revealed a new potent COVID strain of concern, which rekindled memories of March 2020 where stocks plunged. As a result, panic amongst the trading community sent stocks plummeting. All three major US indices lost an average of 2.3% on Friday alone, making it the worst day of the year. For the week, the Nasdaq lost 3.5%, while the S&P lost 2.2% and Dow lost 2%. 

Needless to say, with COVID of a concern again, Oil was battered, losing almost 13% on just Friday alone. Gold and silver dipped back below $1,800 and $24 respectively, and the USD fell a tad lower to 96 as some traders bet that the FED would dial back on tapering due to the new COVID situation.  

Bond prices rose and yields tumbled amid a flight to safety. The yield on the benchmark US 10-year Treasury note fell 15 basis points to 1.49% from the high of 1.68% seen a few days prior. The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge,” rose to 28, its highest level in two months.

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - VIX

USD vs BTC Correlation Back to Normal

There is no denying that the USD has been very strong recently. This is not favouring BTC, which has started to decline as the USD strengthens. This inverse relationship is back to normal as in the months prior, BTC had a strange unexplainable positive correlation to the USD. Hence, traders could keep watch on the USD direction to determine how BTC would move at least in the coming week, until the correlation becomes muffled again.  

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - BTC vs USD 2

Miners and Top Wallets Supply Giving BTC Pressure

One reason why BTC could not manage a proper rebound could be due to an increase in holders selling. Miners have been sending a bit more BTC to exchanges than usual as the price of BTC hit ATH, which could have been one main supply of BTC in the past weeks. However, the amount of BTC transferred is nothing like that in the early part of 2021, which means that the selling pressure is not as intense as before. 

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - Miners flow to exch 2

In a marked change from previous behaviour, over the past week, whales have also become much more active prospective sellers on exchanges.

The exchange whale ratio, which measures how large the top 10 deposits to exchanges are relative to all deposits, is sounding the alarm. The top 10 deposits makeup 91% of exchange inflows, which kind of also means that the selling is not by a large number of holders. 

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - BTC whale ratio 2

Whales Continue To Buy The Dip

Despite the increased selling, the price of BTC did not cave down as other large wallets have been buying throughout the recent downturn – outflows from exchanges is also continuing at an aggressive pace, with reserves still at their lowest since mid-2018.

This could imply that it could simply be a redistribution of BTC from a few wallets to other wallets – which ultimately could benefit in the long-term since this would help in the decentralisation of BTC into different parties. 

The other wallets that scooped up the BTC sold include wallets with more than 1,000 BTC. This group of whales mopped up around 55,000 BTC over the last week as price came tumbling down. 

The third-largest BTC whale address also continued to accumulate more BTC as it acquired over 6000 BTCs within the week.

El Salvador also mopped up another 100 BTC during the “Black Friday” BTC sale. 

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - BTC 1k whale added

The battle of the whales can be seen in the price of BTC, which saw greater than normal intra-day price volatility in recent times. Throughout the week, BTC price has suddenly spiked up, but was followed with an immediate full retracement move, implying that sellers were lurking and constantly putting pressure on BTC price whenever price tried to move up. 

However, an interesting occurrence took place. Immediately after news of the new COVID variant spread, LTHs of BTC, who had been sending BTC to exchanges for sale, stopped. While the price of BTC took an almost 10% dive, there were not a lot of LTHs that sold. This could imply that either the LTHs were price sensitive, or that they were expecting more accommodative central bank policies going forward that could benefit the price of BTC due to the new situation. 

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - BTC LTH supply

ETH Miners Sold ETH Prior To Dip

Meanwhile, the situation for ETH was the same as for BTC, in that miners took the opportunity to offload some ETH when ETH went above $4,500. The supply of ETH at miners’ wallets fell in tandem with the supply of ETH at exchanges, which meant that the miners had successfully sold their portion of ETH just before ETH price crashed to $4,000 on Friday. 

Market Research Report: Crypto Not Spared As New COVID Variant Sparkes Fears - ETH miners vs exch supply

With BTC down almost 10%, altcoins were not spared and bled an average of 20%. Even coins in the metaverse segment, which had been witnessing very good double digits growth despite a weak overall market last week, were not spared from the Friday massacre. SAND, the star performer which had almost doubled over the week, has been retracing backwards by 25%, slightly more than the average 20% fall in altcoins. 

How the markets will behave this week depends a lot on the narrative surrounding the new COVID strain. Should cases start to spike up again, we could continue to see blood letting in the markets, which could be a great buying opportunity as we have seen in the reversal of the March 2020 selloff as that could force central banks to continue to print money to support their economies. 

The Crypto Fear and Fear Index has also fallen to the FEAR category, which historically is a good time to start accumulating. 

Indeed, the crypto market has started the new week recovering half of the Friday selloff, while Oil has bounced 3% higher. Gold and Silver are also a tad higher, while Asian stocks markets, despite opening lower, have managed to pare off some losses. However, whether the rebound can be sustained depends a lot on the US stock market as well as the situation on the new COVID variant. 

Risk Disclaimer:

Investing in or trading gold or other metals can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing in gold CFDs is done at your own risk.

The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

Other news