First Mover Asia: Hong Kong’s OSL Sees Strong Institutional Interest in Crypto, Despite Luna-Induced Volatility; Bitcoin and Ether Surge

There are no losers in CoinDesk 20 today.

Bitcoin and Ether Surge After Fed Chair’s Defiant Remarks

In the ongoing tug-of-war between the forces driving bitcoin over $20,000 and those dragging it below, the drivers won in Thursday trading.

Bitcoin was recently trading at about $21,100, a more than 5% increase over the past 24 hours that helped the largest cryptocurrency regain much of the ground lost the previous day. Ether, the second largest crypto by market cap, was changing hands over $1,140, an 8% gain. Other major altcoins assumed various shades of green with STORJ and POLY assuming two of the darkest hues, rising more than 30% and 20%, respectively at one point.

Crypto increases dovetailed with equities gains as investors relaxed at least temporarily from their risk-averse crouches. The tech-focused Nasdaq, which has increasingly predicted digital assets’ performances, rose 1.6%, while the S&P 500, which contains a heavy tech component, climbed almost a percentage point after a second day of testimony by U.S. central bank Chair Jerome Powell, whose defiant tone about inflation and frank acknowledgement that the Fed’s monetary hawkishness might lead to a recession soothed markets craving clarity.

Still, analysts are pessimistic about the staying power of Thursday’s crypto surge amid onrushing inflation and ongoing geopolitical uncertainty. “Bitcoin remains a risky asset and probably won’t trade on crypto fundamentals until a firm bottom is agreed upon for U.S. stocks,” Oanda Americas Senior Analyst Edward Moya wrote in an email.

Crypto markets absorbed a mix of good and bad news, mostly the latter. Among the more encouraging events, Solana Labs, the main stakeholder in the Solana blockchain network, announced that it was building a Web3 mobile phone called “Saga.” And Binance CEO Changpeng Zhao wrote in a blog post that his firm would remain committed to helping crypto projects with fixable problems and strong potential. “With our position as one of the largest industry players with healthy cash reserves, we have a duty to protect users,” Zhao wrote. “We also have a responsibility to help industry players survive and hopefully thrive.”

But physical futures crypto exchange CoinFLEX paused withdrawals citing the same “extreme market conditions” that other firms in the crypto space, including Celsius have blamed for their troubles. CoinFLEX CEO Mark Lamb said in a blog post Thursday that the decision tied to a certain counterparty, although he added that it was not the struggling crypto hedge fund Three Arrows Capital or “any lending firm.”

Late Wednesday, cryptocurrency broker Voyager Digital reduced its daily withdrawal limit to $10,000 from $25,000 after detailing its exposure to Three Arrows Capital earlier this week. Voyager shares (VOYG) plunged by more than 60% Wednesday after the company said it had an aggregated exposure of $720 million to Three Arrows Capital in the form of stablecoins and bitcoin. And ratings agency Moody’s has downgraded Coinbase’s (COIN) corporate debt and also placed its debt ratings for the crypto exchange under review for further downgrade.

Even as Oanda’s Moya was upbeat about bitcoin’s longer range future, he noted for the present that “no one is confident that the bottom is in.”

“Bitcoin will remain a volatile trade and the correlation with equities seems like it will last for quite a while,” he wrote.

Markets

S&P 500: 3,795 +0.9%

DJIA: 30,677 +0.6%

Nasdaq: 11,232 +1.6%

Gold: $1,822 -0.7%

Insights

Hong Kong’s OSL: Institutional Interest Remains Strong in Crypto, Despite Luna-Induced Volatility

It’s no secret that retail volume on crypto exchanges is down significantly, from around 12% at Binance to 44% on-quarter for Coinbase, but the same isn’t being felt at institutional exchanges.

For example, OSL is on pace in 2022 to set a record for trading volume.

“Our global platform volumes are higher than our average volumes of 2021, and 2021 has been our biggest year,” Fernando Martínez, OSL head of Americas, told CoinDesk in an interview.

Luna’s collapse has affected some exchanges, which have suspended withdrawals, and in turn shaken market confidence, even if some of the exchange’s were victims of technical issues.

Martínez points to growing institutional anxiety with these issues as a reason for the increased volume on OSL.

“They are actually afraid of the counterparty risk because of everything that’s happening,” Martínez said, sharing the perspectives he’s heard from OSL clients: “I cannot trust this or that exchange because you’re blocking withdrawals. I cannot trust this or that counterparty because they’re not regulated, or because I know that they had some exposure to these types of uncollateralized lending type of activities.”

Institutions continue to want to double down on the crypto asset class because they understand that the current correction is merely cyclical, just like any other drawdown. Retail investors are backing away after so many of them got rekt and and because of deep anxieties about inflation and the prospect of a recession.

“From the TradFi institutions that have already entered the market, we’re already seeing them turn up the heat,” he said.

In contrast, Martínez points to the recent sharp spike in outflows from the Toronto-listed Purpose bitcoin ETF as an example of the shaky confidence retail has in the market.

Indeed, Glassnode data shows that on June 17 there was an outflow of 24,500 bitcoin from the ETF. A similar trend can be observed with the 3iQ Bitcoin ETF which saw an outflow of 8,400 bitcoin a few days earlier on June 14.

“It’s a combination between retail that has lost confidence and crypto participants that are not managing risk carefully,” Martínez said.

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