Key Bitcoin Takeaways
- Bitcoin went into correction mode during the early morning session in New York.
- The latest move downhill closely followed a sharp spike above $58,000 during the Asia-Pacific and European session.
- US dollar index turned stronger on hedge fund default worries.
Bitcoin gained on Monday, driven in parts by Visa’s latest foray into the cryptocurrency market and expiry of a record $6 billion worth of options contracts in favor of bulls last Friday.
The BTC/USD exchange rate rose to its one-month high, hitting $58,400 before turning modestly lower on profit-taking sentiment. As an intraday low, the pair’s bid was $54,900, suggesting that traders flocked into the cryptocurrency market owing to a sudden change in their short-term bias.
At first, the expiry of $6 billion contracts on Friday prompted bulls to push their call options towards their favorable strike price target near $55,000. The climb wiped off worries concerning a potential decline towards $47,500, which was bears’ strike price market. The weekend session saw Bitcoin holding onto its newfound support near $55,000.
Second, Visa’s announcement that it has settled a stablecoin transaction atop its legacy system using Ethereum made waves across the cryptocurrency market. Traders interpreted the news as bullish for the crypto and blockchain sector as a whole, with many saying that it would further boost demand for bitcoin and ether tokens.
Bitcoin’s latest gains came against the backdrop of a stronger US dollar.
In retrospect, the US dollar index, which measures the dollar’s strength against a basket of top foreign currencies, was firm on Monday. It drew safe-haven bids on concerns about a potential retreat after a top hedge fund defaulted on its margin calls.
Archegos Capital, reportedly tied to major US media and Chinese tech firms, triggered $30 billion worth of stock sales last week. That resulted in a massive 27 percent decline in the shares of ViacomCBS and Discovery last Friday. A part of unwinding also affected US-listed Chinese entertainment company, IQIYI Inc., whose shares fell 13 percent.
Bill Hwang, who manages Archegos Capital but is mostly known for his prior firm, Tiger Asia Management LLC, took large positions in companies and held positions in swaps. Wall Street banks brokered the contracts that allow clients to take profits and losses on their positions for a fee.
How does one small family office have tens of billions of exposure with multiple primes. What insane leverage are they running and who else is exposed
— zerohedge (@zerohedge) March 29, 2021
Holding swap positions granted Mr. Hwang anonymity, even though Archegos had exposure to more than 10 percent of multiple companies’ stocks. Regulators consider investors holding more than 10 percent exposure to a company’s securities as insiders. It attracts additional regulations.
Mr. Hwang has earlier pleaded guilty to wire fraud and insider trading charges. He agreed to pay $44 million to the US Securities and Exchange Commission to settle the civil lawsuit against him.
The entire episode raises worries about potential contagion risks in the market.
That is one reason why the dollar held steady across the Monday session while the US stocks dropped. Bitcoin may have logged gains owing to its anti-market safe-haven features. Nevertheless, any potential decline in the global stock market could lead traders to unwind their bitcoin holdings for profits and seek safety in cash.