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Crypto prices may have room to run despite recent losses

By Robert Davis

17:18, 19 November 2021

Modern cryptocurrency exchange with chart and numbers
Modern cryptocurrency exchange with chart and numbers - Credit: Open Studio via Shutterstock

Several of the largest cryptocurrencies by market capitalisation had a rough week, falling by as much as 10% before rallying again on Friday morning.

Even though per-unit prices have increased considerably when compared to this time last year, analysts say the assets are being affected by recent regulatory changes and an influx of non-fungible token (NFT) projects.

Bitcoin was up just under 1% by 14:30 UTC to $57,973.21, representing a drop of more than 7.7% over the last seven days, according to trading data from Coin Market Cap.

Other popular assets like Ethereum and Solana were up considerably higher on Friday morning, increasing by 4.7% and 10.7%, respectively. Over the last week, Ethereum lost 6.5% of its value while Solana lost 3%.

New tax reporting regulations

One reason for the rough week is that US lawmakers passed a bill that enacts new tax reporting regulations for cryptocurrency exchanges.

The Infrastructure and Jobs Act, which was signed on 15 November, requires exchanges - or “brokers,” as defined in the bill - to report accountings of their proceeds from sales, tax basis, holding periods, transfers, and receipts of digital currencies to the Internal Revenue Service.

Roger Brown, the head of global tax strategy at Chainalysis, a nonprofit research firm, said in an analysis of the bill that it’s language is broad enough to include new technologies like NFTs and possibly future developments because it labels them as “digital assets” rather than as cryptocurrencies.

However, Brown adds that the new requirements may lead to better relationships between exchanges and regulators by “producing better transaction and income reports for customers, as well as by referring users to or integrating with software companies that have tax compliance solutions for digital assets.”

The values of several exchange coins like Binance Coin, Uniswap, and FTX Coin all dropped over the last seven days. Binance Coin lost 6.8% of its value while Uniswap and FTX Coin lost 14.9% and 9.5%, respectively.

Whales on the move

Another reason that crypto prices fell over the last week is that crypt whales seem to be on the move and are driving the average transaction amount higher.

BTC/USD

96,530.85 Price
-0.380% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 50.00

DOGE/USD

0.31 Price
-1.520% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.0015702

PEPE/USD

0.00 Price
-0.170% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.00000009

XRP/USD

2.22 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.01108

According to a note written by CryptoQuant analyst Ki Young Ju on 14 November, the recent increase in the average transaction amount recorded was due to an increase in whale activity as exchange-initiated transactions lagged.

“These big transactions seem to be used for over-the-counter deals as institutional demand increases,” Ju wrote.

Despite the increased activity, Ju notes that the perpetual future market points to a bearish sentiment as call contracts continue to outweigh puts.

NFT projects

On top of the new tax regulations, investors seem eager to diversify their portfolios with NFTs.

According to a note to investors published by analyst Genevieve Yeoh at Delphi Digital on Wednesday, the continued rise in search interest for NFTs suggests “another wave of activity is on the horizon.”

“There’s only so much attention and demand among crypto enthusiasts so eventually constant drops and short-term flipping was going to lose a bit of steam, especially as more participants started to experience the downside of buying high and selling lower,” Yeoh wrote.

But, there is evidence that Bitcoin may have some room to run in the future, Yeoh says. She points to the current gap between the assets market value and its realised value to make her case.

She describes the gap, also known as the MVRV ratio, as being a “far cry” from its previous high between late Q1 and early Q2 2021.

“Prior BTC cycle tops saw much higher peak MVRV levels, which indicates BTC still has more room to run,” Yeoh said.

Read more: Crypto index analysis: preparing to rally towards 70,000

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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