First Mover Asia: Bitcoin 'Looks Vulnerable': Analyst

Good morning. Here’s what’s happening:

Prices: BTC was trading at $26.8K, but Oanda Senior Market Analyst Craig Erlam is skeptical that bitcoin's price will rise significantly in the months ahead amid uncertain industry and economic news.

Insights: A number of crypto exchanges feature market makers. Do they create conflicts of interest? An FT story looks at Crypto.com's market maker.

Prices

CoinDesk Market Index (CMI) 1,120 +12.6 ▲ 1.1% Bitcoin (BTC) $26,816 +440.3 ▲ 1.7% Ethereum (ETH) $1,736 +11.5 ▲ 0.7% S&P 500 4,409.59 −16.3 ▼ 0.4% Gold $1,963 +4.8 ▲ 0.2% Nikkei 225 33,370.42 −335.7 ▼ 1.0% BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)CoinDesk Market Index (CMI) 1,120 +12.6 ▲ 1.1% Bitcoin (BTC) $26,816 +440.3 ▲ 1.7% Ethereum (ETH) $1,736 +11.5 ▲ 0.7% S&P 500 4,409.59 −16.3 ▼ 0.4% Gold $1,963 +4.8 ▲ 0.2% Nikkei 225 33,370.42 −335.7 ▼ 1.0% BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)

BlackRock has Buoyed the Market, but Bitcoin 'Looks Vulnerable'

Both bitcoin and ether are beginning the Asia trading day in the green, with the world’s largest digital asset up 1.7% to $26,816 while ether is up 0.7% to $1,736.

While the market remains optimistic that BlackRock will be successful with its application for a bitcoin spot exchange-traded fund, Craig Erlam, a Senior Market Analyst with OANDA, said in a note that bitcoin still looks “vulnerable”.

“Bitcoin ended last week quite positively after dropping to three-month lows on Wednesday, but it continues to look vulnerable to further declines,” Erlam said. “The two-month trend is not in its favour, and the news flow isn't exactly helping the situation either. It's had a remarkable year and remains more than 50% higher, so it's hardly a dire situation.”

Erlam still thinks there’s a bull case for bitcoin, it just hasn’t been realized yet.

The recent downturns, he argues, are simply a correction phase within an overall optimistic bull market.

“However, there's little evidence indicating any imminent improvement, especially considering the Securities and Exchange Commission's intensifying scrutiny of major exchanges,” he concluded.

Biggest Gainers

Asset Ticker Returns DACS Sector Solana SOL +4.3% Smart Contract Platform Polygon MATIC +3.1% Smart Contract Platform Bitcoin BTC +1.8% Currency

Biggest Losers

Asset Ticker Returns DACS Sector Chainlink LINK −0.6% Computing Polkadot DOT −0.1% Smart Contract Platform

Insights

Should Crypto Exchanges Have Market Makers?

Crypto.com has joined the club of crypto exchanges that operate an internal market maker, the Financial Times reported Monday.

Market makers are entities that use their own capital to facilitate the trade of tokens on exchanges by taking the counter position on a trade, allowing investors to rapidly exit positions without a counterparty at the other end. If exchanges didn’t have market makers, their liquidity would be considerably thinner on all but the largest tokens.

“We have an internal market maker that operates on the Crypto.com exchange, and that internal market maker is treated exactly the same as third-party market makers that identically facilitate tight spreads and efficient markets on our platform,” the company told the FT. “This is not a controversial practice.”

In the world of Decentralized Finance (DeFi), automated market makers are what allow platforms like Uniswap to exist.

By their nature, most crypto exchanges operate internal market makers. Famously, Binance has Sigma Chain and Merit Peak,which have been in the news recently. Disgraced FTX, had Alameda. Coinbase denies that it runs one.

Participants on the platform, including market makers, are treated equally,” Crypto.com also told the FT. “[The exchange] does not rely on proprietary trading as a source of revenue”.

Without having an internal market maker, it simply wouldn’t be profitable – or even perhaps possible – to list smaller cap tokens and expect a market to form around them. There just won’t be enough activity to quickly match buyers and sellers, making the bid depth unappealing to traders.

Some exchanges instead choose to allow external market makers to operate on their platform. Bullish, for instance, uses B2C2, as an example.

Operating internal market makers raises lots of possibilities for allegations of conflict of interest. Alameda was an investor in many of the tokens it traded as a market maker. Allegations that Sigma Chain or Merit Peak manipulates markets have yet to be proven in court.

Of course, this isn’t a great look for the industry. But it’s just how it works. So many retail equity trades operate in the same way – it's just how the industry works. DeFi’s automated market makers perhaps are a better option, as they are algorithmic and open source, but even these can be accused of bias.

If Crypto.com really lied to outside parties, as the FT claims, about its market-making operations, then that’s a story. But as it stands, and as it said in its rebuttals to the FT’s questions, it’s just doing what everyone else does. Poor optics, yes, but welcome to crypto.

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9:15 a.m. HKT/SGT(1:15 a.m. UTC): The People's Bank of China interest rate decision

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