Fear returns to crypto markets as Bitcoin plunges most in 2 months

• Price point: After nearly hitting peaks of $25,000 earlier this week, bitcoin has fallen to $21,400, and crypto traders have incurred $600 million in liquidations of leveraged bets due to margin calls.

• Market movements: Is the Filecoin Network Incentive Plan Sustainable? CoinDesk’s Jimmy He dives in.

• Today’s chart: US dollar strength weighs on bitcoin.

This article originally appeared in First MoverCoinDesk’s daily newsletter that contextualizes the latest moves in crypto markets. Subscribe to get it in your inbox every day.

Price point

Bitcoin (BTC) plunged the most in two months, falling in line with traditional markets amid renewed fears that the Federal Reserve and other central banks will become more aggressive in their fight against inflation.

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

The price has fallen 9.3% in the past 24 hours to around $21,400, just days after crypto analysts salivated over the prospect of a push above $25,000.

According to Coinglass, crypto traders had $600 million in liquidation of leveraged bets due to margin calls.

Ether (ETH), the second largest cryptocurrency, which had gained ebullience in recent weeks ahead of an upcoming software update on the Ethereum blockchain known as Merge, fell 9%.

“Crypto winter may not be over yet,” with a drop toward $20,000 now possible, Oanda analyst Craig Erlam said.

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

Cryptocurrency-related stocks traded significantly lower in Friday’s premarket session, CoinDesk’s Oliver Knight reports. Marathon Digital (MARA) and Riot Blockchain (RIOT) led the rise, with both sliding by double-digit percentages.

Shares of crypto exchange Coinbase ( COIN ) fell about 7% to $77.81, and shares of MicroStrategy ( MSTR ), a software company that holds large amounts of bitcoin, fell 8.2% to $297.68.

The story continues

In the news, a new Galaxy Digital Holdings’ crypto fund is on track to raise $100 million by the end of the year. The crypto trading bank’s Liquid Alpha Fund was launched last quarter with internal capital.

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Market movements

Is Filecoin Network’s Incentive Plan Sustainable? Cryptanalysts want to know

By Jimmy He

How long can it last?

That’s what cryptoanalysts 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, offering an alternative to industry giants like Amazon Web Services at almost a thousandth of the price.

At its core, the network connects storage providers with clients who want to store their data. By offering storage space—everything from extra capacity on desktops 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 increased. According to a Messari report, active Filecoin storage agreements between vendors and customers increased by 128% in the second quarter from the first quarter.

That has led cryptoanalysts to turn their attention to the incentive program associated with almost all of this growth – Filecoin Plus (Fil+) – and wonder if it is sustainable.

Under Fil+, storage providers can earn 10 times the block reward, or number of FIL tokens, of a typical deal by working with “trusted customers” such as universities and research facilities. These clients turn to notaries public, or community elected trustees, to verify the data they store.

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

Analysts say that Fil+ block rewards act as a subsidy for providers, enabling them to reduce storage fees (an average of $0.0000026 per gigabyte per year). Still, they wonder what might happen to Filecoin’s growth and activity when the incentive program winds down.

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

New income streams

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

Jonathan Victor, product manager for Protocol Labs, the open source research and development lab that developed Filecoin, outlined five sources of revenue for storage providers, including block rewards, storage fees, retrieval fees, transaction fees, and ancillary services.

Storage fees are what customers pay storage providers for the initial storage agreement. Retrieval fees are what customers pay providers to retrieve stored data. Transaction fees are what crypto brokers charge traders to buy and sell FIL.

While revenue from block rewards will eventually decline, Victor argues that storage fees will remain low as long as providers can recoup lost revenue through retrieval fees, transaction fees, and ancillary services.

According to Filecoin’s 2022 roadmap, the storage network plans to add a retrieval market during the third quarter that will speed up blockchain data retrieval and allow storage providers to charge clients to retrieve the data they store.

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

Filecoin plans to implement a programmable storage market in the fourth quarter. It will allow customers to create custom smart contracts to meet their needs.

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

Read the full story here.

Today’s chart

Dollar strength weighs on Bitcoin

By Omkar Godbole

• Bitcoin is quickly approaching trendline support connecting the July 18 and July 13 lows with the dollar index rising past the widely tracked 61.8% Fibonacci retracement.

• Bitcoin’s technical indicators – RSI (Relative Strength Index) and MACD (Moving Average Convergence/Divergence) – suggest there could be more pain ahead.

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