Bitcoin traders appear cautious about the sustainability of the cryptocurrency’s swift recovery from Tuesday’s low of $53,000.

• The top cryptocurrency jumped 8% on Wednesday, erasing Tuesday's slide from $57,000 to $53,000, as the U.S. Treasury Secretary Janet Yellen backtracked on comments suggesting interest rate hikes may be needed to stop the economy from overheating.
• Bitcoin (BTC) is currently trading near $58,000, representing a 21% gain on lows near $48,000 seen at the end of April, according to CoinDesk 20 data.
• The recovery, however, has failed to subdue fears of a deeper bull market correction. The one-week put-call skew remains entrenched in the positive territory for the third straight week in a sign of persistent demand for short-term put options or bearish bets.
• Traders look to be buying "protective puts" – purchasing puts against long bitcoin positions in the spot or futures market.
• The put-call skew is a gauge of the value of puts relative to calls; a positive skew implies that demand for puts (bearish options bets) is outstripping calls (bullish bets). 

• The one-week put-call skew is currently hovering near 9%, having turned positive with bitcoin's drop from $60,000 to sub-$50,000 in the second half of April.
• However, the options market continues to show long-term bullish with three- and six-month skews returning negative values. The one-month gauge is now hovering near zero.

Also read: Ether Traders Load Up on $8K Call Options in Bet Price Will Double by July 

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An unusual confluence of bearish fundamentals caused all cryptocurrencies to fall Wednesday, but traders seem to be scooping up cheaper crypto, sparking something of a rebound.

• Bitcoin (BTC) trading around $39,461 as of 21:00 UTC (4 p.m. ET). Down 8.7% over the previous 24 hours.
• Bitcoin’s 24-hour range: $31,926-$43,602 (CoinDesk 20)
• Ether (ETH) trading around $2,609 as of 21:00 UTC (4 p.m. ET). Losing 23.1% over the previous 24 hours.
• Ether’s 24-hour range: $2,089-$3,447 (CoinDesk 20)

‘Cascading liquidations’

Bitcoin, the world’s largest cryptocurrency by market capitalization, was in the red Wednesday by 8.7% as of press time. BTC was above the 10-hour moving average and below the 50-day, a sideways signal for market technicians.

The total drop for bitcoin in the past 24 hours was 26.7%, going from a high of $43,602 around 21:15 UTC (5:15 p.m. ET) to as low as $31,926 around 13:15 UTC (9:15 a.m. ET), according to CoinDesk 20 data. Bitcoin has recovered somewhat from that low, at $39,461 as of press time. 

Bitcoin has fallen almost 50% from its high on April 12, said Zachary Friedman, chief operating officer for quantitative firm Global Digital Assets. 

Over $8 billion in liquidations occurred during bitcoin’s journey downward. 

“What we saw today was a black swan event of cascading liquidations,” Friedman said. 

Trading volumes surge

However, BTC is trending back up. Wednesday is shaping up to be the highest spot volume day for bitcoin in 2021. As of press time, daily volume is over $14 billion on the eight major exchanges tracked by CoinDesk.

Global Digital Asset’s Friedman sees price support at $37,000, where traders will keep scooping up more bitcoin should the price head back down to that level. 

“We have more than likely seen the bottom here,” Friedman said. 

Read More: Bitcoin Price Plunge ‘Feels Like Capitulation,’ Says Galaxy’s Mike Novogratz

Bitcoin 'scare factor' proven on exchanges

Over the past week, and based on closing data from Tuesday, activity involving investors depositing bitcoin on exchanges has declined by about 40% to around 51,000 transactions, according to data aggregator Glassnode.

“A huge market is scared,” said Greg Magadini, chief executive officer for data aggregator Genesis Volatility. 

Magadini said fear that China may be cracking down on crypto after it reiterated its previous crypto bans is just one of the catalysts that may have caused newer entrants to sell. This may further reduce exchange activity over time, an interesting data point to watch.

“China has played this game before where they have banned crypto and brought it back,” said Steve Ehrlich, chief executive officer for financial service firm Voyager Digital. “There are reports that China is focused on their own digital currency within the government, so it’s possible that this was the motive.”

Bitcoin dominance roars back

After briefly touching 40% Tuesday, according to data from charting software TradingView, bitcoin’s dominance (its share of the greater crypto market capitalization) is flashing green, up four percentage points to 44.01% as of press time. 

Mostafa Al-Mashita, vice president of trading at Global Digital Assets, saw Wednesday as value-buying day, with some market participants rotating back into the supposed safe haven of bitcoin, waiting out what entrepreneur and amatuer crypto troll Elon Musk might say next on Twitter.

“Buyers today will be rewarded, at least short term, for picking up coins at discount prices,” Al-Mashita said. “Elon’s tweets are quite eccentric and unfounded from his end, but show the fickle nature of this market reacting to a single participant.”

Ether still outperforming bitcoin

The second-largest cryptocurrency by market capitalization, ether, was trading around $2,609 as of 21:00 UTC (4:00 p.m. ET), slipping 23.1% over the prior 24 hours. The asset is above the 10-hour moving average as well as the 50-day, a sideways signal for market technicians. 

The total drop for ether in the past 24 hours, going from a high of $3,447 around 21:30 UTC (5:30 p.m. ET) Tuesday to as low as $2,089 around 13:15 UTC (9:15 a.m. ET) Wednesday was 39.3%, according to CoinDesk 20 data. ETH has recovered somewhat from that low, at $2,609 as of press time. 

Despite a more precipitous fall Wednesday, ether has been destroying bitcoin in terms of overall performance this year. As of press time, ETH’s percentage gain is in the triple digits, while bitcoin has eked out a gain of around 59% this year.

An era of hot money

In its latest investor note, quantitative trading firm QCP Capital questioned why, in an era of hot money, only bitcoin has been labeled the inflation buster of crypto. 

“We were always of the opinion that the biggest misconception out there is that BTC is a safe haven or inflation hedge,” the note states. “The moves in the last few months validate this entirely while the BTC enthusiasm has been sucked out last week by the confluence of Elon’s corporate ESG stamp of disapproval [and] the [U.S. Federal Reserve] running way hotter, leading to much lower real yields.”

Read More: Crypto Market Loses $460B as Ether, Altcoins Follow Bitcoin’s Deep Dive

DeFi deflates, ETH fees explode

As the crypto market dumps Wednesday, the amount of cryptocurrency held in decentralized finance, or DeFi, has decreased by $20 billion in the past week. Some of this is due to falling crypto valuations but might also have to do with investors pulling out ASAFP.

One indicator to watch are the ridiculously high fees exacted on Ethereum of late. According to data aggregator Dune Analytics, a simple ether transaction cost $38.10 Wednesday. Trading on decentralized exchange Uniswap carries a hefty $230.25 fee.

The need for alternative blockchains besides Ethereum to run DeFi is clear during market downfalls, noted crypto venture capitalist Constantin Kogan.

“This is why a lot of DeFi projects are moving to Binance Smart Chain or Polkadot, etc.,” said Kogan. “The future is multichain.”

The DeFi market also experienced a high number of liquidations Wednesday, the most since Feb. 22.

Other markets

Digital assets on the CoinDesk 20 are all red Wednesday. Notable losers as of 21:00 UTC (4:00 p.m. ET):

• eos (EOS) - 31.3%
• tezos (XTZ) - 30.6%
• litecoin (LTC) - 29.5%

Equities:

Read More: Bitcoin Proxy Stocks Tumble as BTC Tanks

Commodities:

• Oil was down 2.8%. Price per barrel of West Texas Intermediate crude: $63.40.
• Gold was in the green 0.07% and at $1,870 as of press time.
• Silver is falling, down 1.5% and changing hands at $27.71.

Treasurys:

• The 10-year U.S. Treasury bond yield climbed Wednesday to 1.680 and is in the green 2.6%.

Vertalo, an Austin, Texas-based start-up that helps issue and manage digital securities, has raised $5 million in funding from investors including U.S. cryptocurrency exchange Coinbase.

The Series A funding round closed May 13 and also included participation from the Tezos Foundation, Wedbush Capital and others, according to Vertalo CEO Dave Hendricks.

The four-year-old company helps to digitize assets from real estate to equity in the form of security tokens, using distributed ledger technology – relying primarily on the Tezos and Ethereum blockchains.

“In 2020 we started licensing the platform to broker dealers, capital providers, funds and multi-asset issuers so they can issue security tokens and onboard investors at scale,” Hendricks told CoinDesk in an interview.

Vertalo booked $1.5 million of revenue in the first quarter of 2021, Hendricks said.

One of the company’s primary offerings is blockchain-based capitalization table management, using ledgers to keep track of the owners of shares and assets along with relevant information such as amounts, prices paid, purchase dates and options. The system allows ownership records to be updated in real time when trades are settled via smart contracts. It aims to reduce the errors and complexity involved in managing traditional cap tables, which are often manually updated on spreadsheets.

Vertalo is registered with the U.S. Securities and Exchange Commission as a transfer agent, according to its website, which means it works with issuers to compile and maintain records of security ownership, distribute dividends and facilitate transactions.

Taproot now has more than the required minimum of miners signaling support to lock in the upgrade, but the upgrade isn’t a shoe-in just yet.

Per the activation rules set by Speedy Trial, 90% of blocks mined within one of Bitcoin’s difficulty periods need to signal support for the upgrade for it to be locked in for activation in November.

Currently, mining pools that represent 94% of Bitcoin’s hashrate have now included the Taproot “signal bit” to show their support for the upgrade. But it won’t be until the next difficulty period that we could see the upgrade locked in because the current difficulty period has already seen too many non-signaling blocks for miners to hit the threshold.

Bitcoin’s next difficulty adjustment is in approximately nine days. This next adjustment will mark the third of six possible signaling periods under Taproot’s Speedy Trial activation process, which began on May 1.

Czechia-based Slushpool was the first mining pool to signal for the upgrade, followed by Foundry, F2Pool, Poolin and Antpool. Notably, mining pools have signaled, un-signaled and re-signaled for a variety of reasons so the signaling percentage can oscillate. Poolin’s signal, for example, dropped off in response to technical snafus while BTC.com’s recently changed its status from signaling to not signaling for unknown reasons.

What is Bitcoin's Taproot upgrade?

Taproot is Bitcoin’s most anticipated upgrade since SegWit. The actual change, an alteration to two lines of code, is minimal, but Taproot will outfit Bitcoin with a new signature scheme known as Schnorr signatures.

These signatures pave the way for advanced transaction logic (what the cool kids call “smart contracts”), which will make things like multisignature transactions cheaper and more data efficient (while also giving them a privacy boost by making them look the same as regular transactions on the blockchain). 

In addition to multisignature wallets, the upgrade will be a boon for the Lightning Network and other Bitcoin technologies like discreet log contracts (DLC).