Market Wrap: Bitcoin Dips as China’s Evergrande Defaults, Altcoin Outperformance Could Fade

Most cryptocurrencies traded lower on Thursday after Fitch Ratings labeled China’s Evergrande Group as an official defaulter. Equities also drifted lower as traders appeared to be concerned about the risk of a global slump resulting from China’s credit woes.

Bitcoin dipped below $50,000 and was down about 4% over the past 24 hours. One standout, however, was XRP, which was up about 3% over the same period.

Meanwhile, analysts are trying to make sense of the dispersion among crypto returns over the past month. For example, bitcoin’s market share relative to the overall crypto market share, or the BTC dominance ratio, fell to its lowest level since September, as shown in the chart above. The decline in BTC’s dominance ratio reflects the recent outperformance of alternative cryptocurrencies (altcoins).

“Any sustained period when the share of BTC’s market cap fell below 40% was in January-March and April-June periods in 2018,” Alex Kuptsikevich, an analyst at FxPro, wrote in an email to CoinDesk. “After that, the BTC domination has recovered with altcoins’ deeper crash, called later the crypto winter,” Kuptsikevich wrote.

The potential recovery in BTC’s relative market share could indicate a lower appetite for risk among investors.

Latest Prices

• Bitcoin (BTC): $47,764, -6.0%
• Ether (ETH): $4,134, -6.6%
• S&P 500: -0.7%
• Gold: $1,776, -0.4%
• 10-year Treasury yield closed at 1.492%

For now, analysts are monitoring the correlation between bitcoin and equities, which can reflect investor sentiment toward speculative assets.

“As of recent weeks, bitcoin has surfaced more like a risk asset – correlations against U.S. equities spike above 0.6 the past few days alongside the sell-off in technology stocks last Friday,” Lennard Neo, head of research at Stack Funds, a crypto investment firm, wrote in a report on Thursday. “However, crypto assets did not see the same rebound that U.S. equities had earlier this week,” Neo wrote.

Crypto fund inflows slow

Investors pulled $40 million from crypto investment products during the sell-off last Friday, which contributed to lower inflows totaling $184 million last week.

“Bitcoin [investment products] saw inflows totaling US$145m last week although it suffered at the end of the week with outflows of US$42m on Friday and bore the brunt of investor jitters,” James Butterfill, an investment strategist at CoinShares, wrote in a report earlier this week.

The majority of fund outflows in bitcoin and several alternative cryptocurrencies (altcoins) occurred during the latter half of last week, suggesting that investors are sensitive to sudden price swings.

Still, investors are finding opportunities in the altcoin market. For example, Solana products saw continued inflows totaling $4.6 million for the week, seemingly unaffected by the recent price jitters, according to CoinShares. Solana’s SOL token is down about 19% over the past week, compared with a 12% drop in BTC and a 5% drop in ETH over the same period.

Crypto asset flows (CoinShares)

Altcoin roundup

• Polygon acquires Ethereum scaling startup Mir for $400 million in $MATIC tokens: On Thursday, Polygon announced a $400 million acquisition of Mir, a project focusing on zero-knowledge proofs, CoinDesk’s Andrew Thurman reported. The announcement was made at Polygon’s “zk day” virtual event by co-founders Mihailo Bjelic, Jaynti Kanani and Sandeep Nailwal. In August, Polygon cut a $250 million check to merge with Hermez Network, another “zero-knowledge” scaling tool, using a token swap. With the purchases, Polygon is aiming to become a multipurpose scaling product for Ethereum – a big strategy shift from being an Ethereum competitor before.
• Coinbase offers access to DeFi yields with DAI and Compound: Cryptocurrency exchange Coinbase says it is opening up decentralized finance (DeFi) to customers who want a slice of high yields earned from lending and borrowing crypto assets, CoinDesk’s Ian Allison reported. Coinbase will start with DAI, a stablecoin pegged to the U.S. dollar, which will be deposited in DeFi lending platform Compound. In October, Compound returned a variable annual percentage yield (APY) rate for supplying DAI that fluctuated between 2.83% and 5.39%, according to a Coinbase blog post.
• DeFi platform Slingshot raises $15 million in a funding round led by Ribbit Capital: Slingshot, a service that allows users to trade directly from their wallets while aggregating liquidity across a range of decentralized exchanges, has raised $15 million in a funding round led by Ribbit Capital, CoinDesk’s Ian Allison reported . Firms like Slingshot favor a kind of on-chain “liquidity search engine” that finds the most efficient path for any trade, resulting in better prices for users, according to Clinton Bembry, the startup’s CEO. Slingshot raised $3.1 million in a seed funding round in October 2020, meaning it has now raised $18.1 million.

Relevant News

• MicroStrategy Says It Bought 1,434 Bitcoins Since Nov. 29
• Wallet Maker Ledger Launches Crypto-Linked Debit Card for US and EU Customers
• Bitcoin Hashrate Approaches Full Recovery From China Crackdown
• Meta’s WhatsApp to Trial Novi Digital Wallet

Other markets

All the digital assets in the CoinDesk 20 ended the day lower.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

• None

Notable losers:

• Polygon (MATIC), -13.7%
• EOS (EOS), -10.5%

   
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