First Mover Americas: Bitcoin Holds $40K, Yuan Drop May Add to Risk Aversion

Good morning, and welcome to First Mover. Here’s what’s happening this morning:

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By Omkar Godbole

Bitcoin traded flat as weakness in the Chinese yuan threatened to add to risk-off sentiment in global financial markets.

The top cryptocurrency by market value changed hands above $40,000, having suffered a 2% drop to the psychological support on Thursday after hawkish comments from Federal Reserve Chair Jerome Powell sent stocks lower.

The yuan (CNY) fell to 6.5050 per U.S. dollar, the lowest level since July 2021 and was on the way to end the week with a 2.5% loss. That’s the biggest single-week percentage decline since August 2015, according to data source TradingView.

“Check out the Chinese yuan in recent days. Weakening quickly. Lockdowns, slower GDP growth, and the currency of its nearest competitor Japan collapsing. A fast-weakening yuan is a risk-off signal,” Jeroen Blokland, founder and research head at investment research platform True Insights, tweeted.

According to some observers, including Crescat Capital’s portfolio manager Otavio Costa, the yuan could continue to slide as China is facing a major economic downturn and needs to severely devalue its currency.

Previous episodes of yuan devaluation injected significant volatility into traditional markets. For instance, the S&P 500 fell 6.2% in August 2015, hitting a 10-month low as the yuan depreciated by 2.5%. Stocks faced similar turbulence during three months to January 2016 as yuan’s depreciation gathered pace.

Bitcoin’s strengthening correlation to stocks makes it vulnerable to a yuan-induced shake-off on Wall Street. At press time, futures tied to the S&P 500 pointed to a negative open. The index fell nearly 1.5% on Thursday.

Historically, before 2020, bitcoin has put in a positive performance during bouts of yuan weakness. Perhaps, Chinese investors diversified into bitcoin to hedge against fiat currency volatility. However, they may have a tough time doing so today, given China has banned bitcoin.

Retail Interest in bitcoin is dwindling

Data from Google Trends shows search value for worldwide query bitcoin has dropped to 17, the lowest since mid-2020, having peaked above 70 a year ago.

Google Trends is a widely used tool to gauge general or retail interest in trending topics. A value of 100 represents peak retail interest often observed at market tops.

The latest low reading suggests the general population has lost interest and are no longer scanning the web for information about the top cryptocurrency.

Perhaps, retail froth has left, leaving the market in a much healthy state. Read the full story by CoinDesk’s Shaurya Malwa here.

Ether options look cheap

Traders find ether options – derivative contracts offering upside and downside protection – cheap in the current low implied volatility environment.

“In my opinion, it makes sense to buy options [call and put] given volatility is low,” Samneet Chepal, quantitative analyst at the digital asset investment firm Ledger Prime told CoinDesk in a Telegram chat. “The IV is quite cheap largely due to the choppy market action, which results in traders being more complacent in selling vol plus the impact of systematic selling from the DeFi option vaults.” Read the full story here.

By Omkar Godbole

The three-day chart leans bearish, with bitcoin facing rejection at the Ichimoku cloud resistance and the MACD histogram crossing bearish.

The trendline connecting Jan. 22 and Feb. 24 lows could offer support around $37,200. The recent high of $43,000 is the level to beat for the bulls.

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Nelson Wang.