First Mover: July Was a Runaway Month for Crypto Returns

Crypto traders didn’t need to work too hard to make money last month. They just had to be in the market. 

Every digital asset in the CoinDesk 20 ended the month in the black. Bitcoin benefited from bets against the U.S. dollar while ether, the native cryptocurrency of the Ethereum blockchain, gained from speculation over the future of “decentralized finance,” known as DeFi.

Bitcoin rose 24% during the month, its best July in eight years, and was changing hands as of late Sunday at around $11,100 – even after a flash crash earlier in the day that saw the price plunge about $1,400 in a matter of minutes.

The largest cryptocurrency by market value continues to benefit alongside gold as the ongoing economic toll of the coronavirus raises expectations of further rescue packages and stimulus from central banks and governments. Gold, seen by many investors in traditional markets as a hedge against inflation, has been hitting new records and on Sunday was closing in on $2,000 an ounce.

The credit-rating firm Fitch on Friday placed a “negative outlook” on the United States’ triple-A rating, writing in a press release that a “resurgence of inflation” could force the Federal Reserve to raise interest rates, “adversely affecting debt dynamics.” 

“Paper money hit a low versus non-quantitatively-easible money like gold and bitcoin,” Dan Morehead, CEO of the cryptocurrency investment firm Pantera Capital, wrote last week in a monthly letter.  

Bitcoin is now up 56% on the year, vastly outperforming the Standard & Poor’s 500 Index, which is up 1.3% in 2020. The gauge of U.S. stocks rose 5.5% in July. 

Ether, the second-biggest cryptocurrency by market value, jumped 54% in July and is now trading around $380, its highest in two years. Ethereum has become the blockchain of choice for most of the biggest projects in DeFi, where decentralized lending and trading systems have now garnered some $4.2 billion in total value locked, quadruple the amount just two months earlier. 

“All this hype surrounding DeFi has further fueled Ethereum’s rise,” Jay Hao, CEO of the cryptocurrency exchange OKEx, wrote last week, noting that trading volumes had jumped on decentralized exchanges. 

“Even if the DeFi bubble were to burst, it seems that it cannot quell the enthusiasm for ether,” Hao wrote. “In actual fact, it may bolster its price further as the capital flows from DeFi tokens back into ether.”

July’s top-performing digital asset, Chainlink’s LINK token, surged 70%.

As CoinDesk Senior Markets Reporter Daniel Cawrey detailed in First Mover on Friday, LINK represents the leading “oracle” – an automated price feed – for many DeFi applications built atop the Ethereum blockchain. And the role is potentially so lucrative that many other projects are now vying to grab market share in the oracle race. 

Among the CoinDesk 20, the only tokens that didn’t post big price gains in July were the stablecoins tether and USDC, which by definition don’t move much because they’re pegged to the dollar. 

It’s somewhat ironic, since the outstanding amount of stablecoins has grown rapidly, swelling past $12 billion. 

“If you were in a stablecoin, you missed out the gains that bitcoin or Ethereum or Chainlink were giving,” said Joe DiPasquale, CEO of the cryptocurrency hedge fund BitBull Capital.  

BTC: Price: $11,225 (BPI) | 24-Hr High: $11,295 | 24-Hr Low: $10,956

Trend: Bitcoin’s bullish bias remains intact despite Sunday’s sudden flash crash. 

The top cryptocurrency by market value was trading in the green near $11,225 at press time, having dropped by $1,400 to levels under $10,700 yesterday. The price slide erased (or engulfed) the uptick seen in the preceding four trading days. 

Bearish engulfing candles like that formed Sunday are widely considered early signs of an impending bearish reversal. However, the drop looks to be nothing more than a healthy pullback, which often occur after a notable rally.

Bitcoin rose by $2,900 in the 11 days to Aug. 31, pushing the widely tracked 14-day relative strength index into overbought territory above 70. As such, a pullback was likely and expected. In the past, bitcoin has seen bigger price drops during bull runs. 

“The latest bitcoin pullback was only 15%. There were at least six pullbacks of 30%+ or more last bull market uptrend,” popular analyst Josh Rager tweeted early Monday. 

And while Sunday’s sell-off was the biggest single-day decline since May 10, it failed to take out the former hurdle turned-support of $10,500 (February high). Prices closed (UTC) well above that level on Sunday, confirming a bullish breakout for the week. 

Looking ahead, a re-test of $12,000 cannot be ruled out, as the 14-day RSI has rolled over to under-bought (or bullish) territory below 70.00. Upward momentum looks strong with the 10-day simple moving average (SMA) trending north.

The bullish outlook would only be invalidated if the cryptocurrency establishes a strong foothold under $10,500.