What’s causing crypto’s volatility – Coinbase Bytes April 28 2021
Greetings from Coinbase Bytes,
Another rollercoaster of a week for crypto: Since Sunday, Bitcoin has fluctuated from lows near $47,000 to highs around $55,000. In this week’s Bytes, we’re explaining possible causes of the recent turbulence. Plus, we’re exploring how athletes like top NFL prospect Trevor Lawrence are diving into crypto. The game plan:
Recent market volatility explained
Crypto is a game changer for pro sports
Venmo begins to offer BTC and ETH
Bitcoin falls sharply to $47K before recovering
Volatility continued for the third straight week. After dropping 23 percent from its all-time high, Bitcoin started to rebound as investors seemingly took advantage of new lows. On Monday, prices rebounded as high as $54,000 — the biggest single-day jump since February. So what caused the drop?
Some analysts say the Biden administration’s capital-gains tax announcement spooked investors.The proposed increase would only affect a small percentage of taxpayers. But the possibility of higher rates may have pushed prices down.
Leveraged bitcoin bets deepened the selloff. Leveraged investments are risky because they’re made with borrowed capital — and if prices move in the wrong direction, lenders can automatically sell (or liquidate) the asset to avoid losing more.
Traders lost more than $10 billion on Sunday to liquidations. As The Wall Street Journal reports, falling bitcoin prices caused billions of dollars in leveraged bets to be liquidated, driving prices down even more, “leading to a vicious cycle of further liquidations.”
Ethereum had a similarly bumpy ride. In the wake of freshly launched Ethereum ETFs in Canada, ETH reached an all-time high of $2,650 only to lose over 20 percent of its value over the weekend. Prices finally stabilized around $2,600 on Tuesday.
Why it matters… As a newer asset class, crypto has the potential for significant price swings. Bitcoin fell to its lowest levels in seven weeks, and CoinMarketCap estimates that nearly $220 billion of value in cryptocurrencies were wiped out in an hour. Despite the drop, Bitcoin prices remained sharply high for the year, maintaining about 80 percent of its growth since January.
Brush up on the bull run
NFL, NBA stars embrace crypto deals
Ever since Mark Cuban’s Dallas Mavericks became the second team in the NBA to accept bitcoin for tickets and merchandise in 2019, the worlds of crypto and pro sports have continued to collide. From players’ bitcoin salaries to the NBA’s NFT platform, the crossovers just keep coming.
Clemson quarterback Trevor Lawrence signed a first-of-its-kind endorsement deal with a crypto app (Blockfolio, whose parent company FTX recently won naming rights to the Miami Heat’s arena). Lawrence — presumed to be the top pick in the NFL draft — also elected to receive his league signing bonus entirely in bitcoin.
Kansas City Chiefs tight end Sean Culkin will become the first NFL player to get paid entirely in bitcoin. Culkin announced he’s following offensive tackle Russell Okung’s example, but instead of splitting his paycheck between crypto and dollars, Culkin is all in on BTC.
NFTs are becoming big business in pro sports. NBA Top Shot is a marketplace where fans can buy, sell, and trade unique highlight clips. Since Dapper Labs helped launch Top Shot in October 2020, it’s logged more than $500 million in trading volume.
Dapper Labs, the NBA, and its players union each get a cut of every peer-to-peer transaction on Top Shot’s marketplace. But it’s not a flawless system: Some customers are reporting difficulty cashing out of the platform.
The NFL has yet to launch an NFT platform, but that hasn’t stopped its biggest stars. Patrick Mahomes netted $3.7 million in NFT sales this year, while Rob Gronkowski hauled in $1.6 million for his Championship Series NFTs. Tom Brady even co-founded his own NFT platform, Autograph, and many other players are rushing into the space.
Why it matters… NFTs allow athletes to retain more direct ownership of their likenesses. As Pittsburgh Steeler Cassius Marsh points out: “The NFL uses my image all the time…I definitely feel like the NFT space gives athletes a financial advantage.” As for getting paid in bitcoin, Culkin put it this way: “Considering my career — particularly its physical demands, and brevity — it makes the most sense to be paid in sound money that I believe protects its purchasing power over time.”
What are NFTs?
Venmo offers crypto to 70 million customers
Venmo has started offering its 70 million U.S. users the ability to buy, sell, and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash — the same cryptocurrencies offered for limited trading by parent company PayPal. The company noted that more than 30 percent of its customers already trade crypto or equities, and that 20 percent started investing in those markets during the COVID pandemic.
Why it matters… The payment app’s move is the latest sign of crypto’s rapid rise into the mainstream. But it comes with significant limitations. While users can buy, hold, and sell select tokens, they can’t send them to friends or merchants — or to any other wallet. So the question remains: As legacy payment companies expand into crypto, what services will customers expect?
Charged up… During its Q1 earnings call, Tesla revealed it had sold 10 percent of its bitcoin holdings for around $272 million. In a subsequent tweet, CEO Elon Musk revealed that he personally holds crypto and claimed that Tesla’s move was to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.”