For the first time since mid-June, bitcoin is on track to close out a week without dipping below the psychologically vital $20,000 mark, and spent most of the week above $22,000.
In this crypto market, that’s something of a victory.
Not much of one, mind you, as crypto is still deep in the red. Bitcoin was down as much as 75% since nearing $69,000 in November and has given back all the gains of the 2021 bull market. But for now, the near panic that has crushed the broader crypto market since it was spooked by the $48 billion collapse of the Terra/LUNA stablecoin ecosystem in May seems to have receded.
What’s interesting is why it all happened.
To begin with, the biggest influence on bitcoin this week was actually news about another cryptocurrency, No. 2 ether.
The Ethereum blockchain hit a gigantic milestone, with developers setting a September date for the “merge” that will turn it into a far faster blockchain, capable of scaling massively — from the current 12 or 13 transactions per second (TPS), the new Ethereum 2.0 blockchain will be capable of 100,000 TPS.
That will make it a very viable payments rail, among other benefits.
It will also switch to an environmentally friendly proof-of-stake consensus mechanism that will effectively eliminate its country-size pollution footprint — something that has hurt cryptocurrency’s image for some time.
Return of Optimism
While this boosted ether more than anything else — the No. 2 crypto was up as much as 45% this week — the rare piece of good blockchain industry news had a spillover effect on bitcoin and many other cryptocurrencies.
It marked a “return of optimism,” according to influential CoinDesk podcaster Nathaniel Whittemore, filling what The Breakdown’s host called a “narrative void” about the ways blockchain and cryptocurrencies can change the world, the industry news outlet said.
That has been sorely lacking since the algorithmic stablecoin terraUSD lost its dollar peg in early May. Aside from the $48 billion investors lost, it set off a ripple effect, sending a wave of bankruptcies through the crypto lending industry that saw hundreds of thousands of small retail investors frozen out of their deposit accounts and looking at losses as the companies that invested their funds were clobbered by huge and poorly vetted loans.
Elon Musk Sells
Tesla and SpaceX CEO Elon Musk is well known for his ability to move crypto markets, with everything from big investments in bitcoin — Tesla bought $1.5 billion worth in early 2021 — to casual memes that have built dogecoin into an actual cryptocurrency that’s gaining a foothold in payments.
So what was interesting was that the rally wasn’t crushed on Wednesday (July 20), when Musk revealed in a quarterly earnings report that Tesla had sold off three quarters of its bitcoin holdings for $936 million — at a loss of as much as $9,000 per bitcoin, MarketWatch calculated. There was a drop, but the oldest cryptocurrency rebounded.
That may possibly be because Musk said the sale was to strengthen Tesla’s cash position in the face of what he called COVID-related fears about the Chinese market, rather than a sign he was turning his back on bitcoin. And, he added, Tesla was “open” to buying more in the future.
Meanwhile, bitcoin was able to largely shrug off the European Central Bank’s 50 basis point rate hike on Thursday (July 21). So far, it seems calm in the face of 75 basis point hike expected from the U.S. Federal Reserve next week.
That said, Whittemore — and others — have predicted that a true bitcoin bull market will have to wait until the Fed stops hiking rates in the face of record-setting inflation.
So, if you’re one of the roughly half of bitcoin buyers in the red, it’ll likely be a while before you can sell high.
For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.