First Mover Americas: Fear Makes Quick Return to Crypto Markets as Bitcoin Plunges Most in 2 Months

  • Price Point: After almost reaching highs of $25,000 earlier this week, bitcoin has dropped to $21,400. Crypto traders suffered some $600 million of liquidations of leveraged bets due to margin calls.
  • Market Moves: Is Filecoin network's incentive plan sustainable? CoinDesk's Jimmy He dives in.
  • Chart of The Day: The U.S. dollar strength weighs over bitcoin.

This article originally appeared in First Mover, CoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

Price point

Bitcoin (BTC) plunged the most in two months, falling in sync with traditional markets amid renewed fears that the Federal Reserve and other central bankers will have to get more aggressive in fighting inflation.

The move brought a decisive end to hopes in the past month that the world’s largest cryptocurrency might stage a recovery following the price crash in May and June.

As of Friday the price had tumbled 9.3% over the past 24 hours to about $21,400 – just days after crypto analysts had been salivating over the prospect of a push past $25,000.

24-hour price chart (CoinDesk)

According to Coinglass, crypto traders suffered some $600 million of liquidations of leveraged bets due to margin calls, as the carnage spread.

Ether (ETH), the second-biggest cryptocurrency, which had gained in recent weeks from ebullience ahead of an upcoming blockchain milestone known as the Merge, fell 9%.

“The crypto winter may not be over yet,” with a drop toward $20,000 now looking possible, according to Craig Erlam, senior analyst at OANDA.

Some altcoins took a larger dive, with Filecoin’s FIL token down 17%. Ethereum Classic’s ETC was also down 15%.

Cryptocurrency-related stocks were trading significantly lower in Friday’s pre-market session, CoinDesk’s Oliver Knight reports. Marathon Digital (MARA) and Riot Blockchain (RIOT) are leading the plunge in crypto stocks today, with both making double-digit percentage moves to the downside.

Coinbase (COIN), meanwhile, is trading at $77.81, a 6.91% decline from Thursday's close of $85.44. MicroStrategy (MSTR), which is one of the largest holders of bitcoin, has seen its stock drop to $297.68, 8.23% lower than yesterday's close.

The shares traded at under $11 off hours, down from a high of $30 earlier on in the week.

In the news, a new Galaxy Digital Holdings' (GLXY.TO) crypto fund is on path to raise $100 million by the end of the year. The crypto merchant bank's Liquid Alpha Fund launched last quarter with internal capital.

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Market Moves

Is Filecoin Network's Incentive Plan Sustainable? Crypto Analysts Want to Know

By Jimmy He

How long can it last?

That's what crypto analysts are wondering about the Filecoin incentive program, the driver behind the bulk of the blockchain project's growth.

Filecoin was launched in 2020 to decentralize the data storage business, providing an alternative to industry giants like Amazon (AMZN) at nearly a thousandth of the cost.

At its core, the network connects storage providers with clients looking to stow their data. By offering storage space – ranging from extra capacity on desktop computers to large racks – and then running mathematical proofs to show that clients’ data is unaltered, providers can earn the network’s native FIL token as a blockchain reward.

Recently, activity has been picked up the pace. According to a Messari report, active Filecoin storage deals between providers and clients surged 128% from the first quarter to the second quarter of 2022.

That has crypto analysts calling attention to the incentive program linked to 99.7% of that growth – Filecoin Plus (Fil+) – and wondering whether it's sustainable.

Under Fil+, storage providers can earn 10 times the block reward, or amount of FIL tokens, of a typical deal by working with “trustworthy clients” such as universities and research facilities. These clients apply to notaries, or community-elected trustees, to verify the data they are storing.

Fil+’s approval system weeds out storage providers who may negotiate deals with clients storing fake data just to reap block rewards.

Analysts say that Fil+ block rewards act as a subsidy for providers, making it feasible for them to slash storage fees (averaging $0.0000026 per gigabyte per year). Still, they wonder what might happen to Filecoin’s growth and activity once the incentive program tapers off.

“Over time, storage miners will have to start charging,” said Messari enterprise research analyst Sami Kassab. “What I think is going to be the most important thing to watch there is if the storage demand can still keep up when storing data is no longer free.”

New revenue streams

Filecoin project leaders say the network is set to roll out new functions to create additional revenue streams for data-storage providers, which would maintain growth and keep prices low even as the extra block rewards decrease.

Jonathon Victor, product lead for Protocol Labs, the open-source research and development lab that developed Filecoin, outlined five revenue sources for storage providers: block rewards, storage fees, retrieval fees, transaction fees and additional services.

Storage fees are what clients pay storage providers for the initial storage deal. Retrieval fees are what clients pay providers to fetch stored data. Transaction fees are what crypto brokers charge traders for buying and selling FIL.

While revenue from block rewards will eventually decrease, Victor argues that storage fees will remain low as long as providers can make up the lost revenue through retrieval fees, transaction fees and additional services.

According to Filecoin’s 2022 roadmap, the storage network plans to add a retrieval market during the third quarter that would increase the speed of blockchain data retrieval and allow storage providers to charge clients for retrieving the data they are storing.

Filecoin also launched the Filecoin Virtual Machine (FVM) in July 2022, which let clients run smart contracts from other networks and unlocked the potential for decentralized finance (DeFi).

In the fourth quarter of this year, Filecoin plans to implement a programmable storage market, which would allow clients to create customized smart contracts to meet their needs.

“Things like the FVM are going to drive transaction fees,” said Victor. “It will drive demand for Filecoin block space.”

Read the full story here.

Chart of the Day

Dollar Strength Weighs Over Bitcoin

By Omkar Godbole

Daily charts of BTC and U.S. dollar index (Omkar Godbole/TradingView)
  • Bitcoin is fast approaching support of trendline connecting July 18 and July 13 lows with the dollar index rising past the widely-tracked 61.8% Fibonacci retracement.
  • Bitcoin's technical indicators – the RSI and the MACD – suggest there could be more pain ahead.

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