Bitcoin’s Reaction to China vs. the U.S.

Weekly insights, news and analysis for the professional investor

By Marc Hochstein, Executive Editor

August 22, 2021

Sponsored by

Bitcoin (BTC) - $49,279.64

Ether (ETH) - $3,269.24

Prices as of 08/22/21 @ 8 a.m. UTC

If you were forwarded this newsletter and would like to receive it, sign up here.

Crypto markets are funny. Sometimes they appear to react strongly for the silliest of reasons, like a celebrity tweet. Sometimes they seemingly ignore or shrug off more consequential real-world events.

In this week's essay, Emily Parker, CoinDesk's managing director of international content, ponders why prices tanked on China's May industry clampdown but not after the more recent, ominous legislative developments in the U.S. Among the possible explanations is that despite being the world's largest economy, the Land of the Free ain't the center of the universe when it comes to magic internet money.

As Emily notes, it's a tricky business anyway trying to ascribe market movements to news events, not least of all in crypto, which relative to traditional financial assets is still thinly traded. Reminds me of the time, many moons ago, when I asked a Wall Street trader why some bond or commodity (I forget what it was) was rallying or dropping (I forget which). I expected him to cite the macro development of the day (again, long forgotten). Instead, he just scoffed, "pfft – technicals."

As always, if you like what you read, please forward Crypto Long & Short, and reply to this email with feedback and questions. You can also find me on Twitter. Have a great rest of your Sunday.

– Marc Hochstein, Executive Editor

A message from Crypto.com

Buy bitcoin and 100+ cryptocurrencies with 20+ fiat currencies. New users can enjoy 0% credit/debit card fees on all crypto purchases made in their first 30 days. Download the Crypto.com App now.

The Briefing

Governments can't stop cryptocurrencies, but they can make it much harder to access them. So it would make sense that unfriendly government policies in the world's largest economies would play a role in driving down the price of bitcoin.

As a case in point, in the few days after China reiterated its crypto crackdown in May, bitcoin at one point plunged by as much as 30%. The drop was another reminder that when China speaks, the market listens.

The U.S., it seems, not so much.

This month, a highly controversial crypto tax provision in the $1 trillion infrastructure bill passed through the Senate, despite ardent attempts to amend it. Crypto advocates claimed that the provision would make it impossible for miners, software developers and other crypto-related actors to comply with U.S. tax regulations, thus threatening to drive much of the industry overseas. This would seem to be a pretty bearish sign.

But it wasn't, at least over the short term.

In the few days that followed the advancement of the bill, bitcoin shot up by as much as nearly 7%. In fact, shortly following the drama in Washington the entire crypto market reached a market cap of $2 trillion, a height not seen since May.

This week, the provision will move to the House, where the language may or may not change. It remains to be seen whether the market responds to what happens in Washington.

Why did bitcoin seem to react so differently to the U.S. compared with China? As with anything bitcoin price-related, it's impossible to say for sure, and there are many other factors that affect prices. But here are some of the more plausible theories.

Read the full column here.

A message from Copper

Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers.

To learn more visit copper.co/interest

Chain Links

Michael Burry, through his Scion Asset Management fund, is betting against Ark Invest CEO Cathie Wood's ARK Innovation ETF (exchange-traded fund) to the tune of 235,500 shares shorted, or about $31 million worth of put options. TAKEAWAY: Two of America's most respected investors are locking horns over their conflicting views of the economic future. The contretemps has been largely framed as one between data-driven fundamental investing and a more ideas-driven, big-picture approach.

TikTok is partnering with decentralized music streaming protocol Audius to streamline the social media giant's music upload and selection process. TAKEAWAY: In response to the news, prices for Audius' governance token AUDIO doubled and market capitalization for the token surpassed $1 billion for the first time.

European crypto exchange Bitpanda raised $263 million in a Series C round of funding led by PayPal founder Peter Thiel. TAKEAWAY: Billionaire investor Alan Howard, who started investing in cryptocurrency and blockchain startups this summer, also participated in the funding round. Bitpanda made headlines in March as the first-ever tech unicorn in Austria. Today, the exchange is valued at $4.1 billion.

Robinhood's first earnings report as a public company shows that its revenue from cryptocurrency trading jumped from 17% of the total in the first quarter to 41% in the second quarter. TAKEAWAY: Cryptocurrency is playing an increasingly important role in Robinhood's business. Robinhood further specified that 62% of its cryptocurrency revenue in the second quarter came from the trading of dogecoin.

Coinbase stockpiles over $4 billion in cash in preparation for a "crypto winter." TAKEAWAY: The largest publicly traded crypto exchange prepares for another long-term bear market with low trading volumes and investor interest.

Michigan-based mortgage lender United Wholesale Mortgage (UWM) plans to accept bitcoin payments within the year. TAKEAWAY: The move is a first for the mortgage industry and would allow homeowners to make payments with assets outside of the dollar.

In partnership with NYDIG, Wells Fargo has launched a passive fund for wealthy clients to have indirect exposure to bitcoin. TAKEAWAY: High-net-worth individuals have likely expressed interest in the asset class for – at least the price action, if not the hassle of managing wallets and private keys – prompting the third-largest U.S. bank to open the fund.

BlackRock has nearly $400 million invested in public bitcoin mining companies, spread out across ETFs and mutual funds it manages. TAKEAWAY: Now traders of BlackRock's ETFs, like the Russell 2000, can get exposure to bitcoin mining, specifically Riot Blockchain and Marathon Digital Holdings.

A message from CoinDesk

Introducing Crypto for Advisors, a weekly newsletter built specifically for financial advisors (FAs) and registered investment advisors (RIAs).

Crypto for Advisors, delivered every Thursday, is designed to inform and educate financial professionals who seek to incorporate this rapidly moving asset class into their work. Subscribe today.