Why bitcoin is up 40% in January despite crypto industry carnage

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Wel­come back to Dis­trib­uted Ledger. This is Frances Yue, cryp­to reporter at MarketWatch. 

Bit­coin has had a stel­lar start this year, with an almost 40% rise so far, even though cryp­to lender Gen­e­sis filed for bank­rupt­cy last week, only months after dig­i­tal asset exchange FTX implod­ed in Novem­ber. In this install­ment, I’ll break down what’s dri­ving the largest cryptocurrency’s rally. 

Find me on Twit­ter at @FrancesYue_ to share any thoughts on cryp­to, this newslet­ter, or your per­son­al sto­ries with dig­i­tal assets. 

Why the rally?

It is not only cryp­to – most mar­kets tend to per­form well in Jan­u­ary, as fund man­agers rush to deploy mon­ey at the start of a year, accord­ing to Ivan Ivanchenko, man­ag­ing part­ner at Phi­nom Dig­i­tal. In fact, most risk assets rose so far this year, with the tech-heavy Nas­daq Com­pos­ite log­ging a 8.8% gain, accord­ing to Fact­Set data. 

Mean­while, bit­coin was heav­i­ly short­ed in Novem­ber and Decem­ber after FTX’s col­lapse. As the crypto’s price rose unex­pect­ed­ly in Jan­u­ary, some short sell­ers were forced to close their posi­tions and buy bit­coin, push­ing the crypto’s price even higher. 

Bitcoin’s rise also comes as investors’ con­fi­dence picked up, not­ed Luuk Stri­jers, chief com­mer­cial offi­cer at cryp­to deriv­a­tives exchange Deribit. 

After FTX’s implo­sion in Novem­ber, the num­ber of open con­tracts for bit­coin futures and options on Derib­it reached the high­est lev­el in his­to­ry, indi­cat­ing a high lev­el of activ­i­ty, not­ed Stri­jers. “That’s because peo­ple were antic­i­pat­ing the worst which requires a need for them to hedge their hold­ings to pro­tect more down­side moves,” Stri­jers told Dis­trib­uted Ledger in an interview. 

The fear and pan­ic in the cryp­to mar­ket may be eas­ing slight­ly in Jan­u­ary, with sev­er­al sig­nals in the deriv­a­tives mar­ket sug­gest­ing a come­back of insti­tu­tion­al inter­est. The spot price of bit­coin is low­er than the futures prices, show­ing that traders believe bitcoin’s price will rise, accord­ing to data from sev­er­al exchanges. 

In addi­tion, there are more call options trad­ing in the mar­ket than put options, sig­nal­ing a rise in bull­ish sen­ti­ment, not­ed Stri­jers. Call options allow traders to buy an asset at a pre­de­ter­mined price, while put options allow traders to sell an asset at a pre­de­ter­mined price. 

What’s next?

Despite the recent ral­ly, Phinom’s Ivanchenko expects fur­ther down­side for bit­coin, which may fall below its pre­vi­ous low of $15,480, said Ivanchenko. “I pre­fer to think of the mar­ket right now as hav­ing more risks than oppor­tu­ni­ties,” Ivanchenko said. “We don’t know the weak­ness of cer­tain links.” 

The macro­eco­nom­ic envi­ron­ment remains chal­leng­ing, with still high infla­tion and a pos­si­ble reces­sion on the way at least in the U.S. It is also unclear how Genesis’s bank­rupt­cy may spill over to oth­er com­pa­nies, includ­ing its cor­po­rate par­ent Dig­i­tal Cur­ren­cy Group and its sis­ter com­pa­ny Grayscale Invest­ments, which owns the world’s largest bit­coin fund GBTC, not­ed Ivanchenko. 

Read: Jere­my Grantham says ‘eas­i­est leg’ of stock-mar­ket bub­ble burst is over. Here’s what’s next.

Mean­while, after sev­er­al major cryp­to com­pa­nies’ col­lapsed last year, “reg­u­la­tors can push the mar­ket to new lows, eas­i­ly,” said Ivanchenko. 

Deribit’s Stri­jers holds a dif­fer­ent view. He expects the ral­ly to con­tin­ue with a mar­ket in a “recov­ery mode.”

The impact of the implo­sions of FTX and Gen­e­sis on most large cryp­to com­pa­nies are already known and priced in, not­ed Stri­jers. “I think that peo­ple real­ize it, and the Gen­e­sis prob­lem even though bad and unset­tled, is man­age­able,” said Strijers. 

Tesla’s crypto holdings

Tes­la didn’t buy or sell any bit­coins in the fourth quar­ter of 2022, though the largest cryp­tocur­ren­cy fell to a two-year low of $15,480 in Novem­ber, after FTX filed for bank­rupt­cy. Tes­la invest­ed $1.5 bil­lion in bit­coin in ear­ly 2021, when the cryp­to was trad­ing above $30,000. 

Still, the elec­tric car mak­er record­ed a $34 mil­lion impair­ment loss in the fourth quar­ter, record­ing the val­ue of its dig­i­tal asset hold­ings at $184 mil­lion on Dec. 31, down from $218 mil­lion on Sept. 30.

Crypto in a snap

Bit­coin prices rose 10% dur­ing the past week, and was trad­ing at around $23,027 on Thurs­day, accord­ing to Coin­Desk data. Ether
ETHUSD
 gained 5% over the same stretch to around $1,601, Coin­Desk data shows.

Biggest Gain­ers Price %7‑day return
Aptos  $18.32 139.5
Fantom  $0.49 63
Axie Infinity  $11.64 44.6
BTSE $3.01 42.6
eCash  $0.00004 42.5
Source: CoinGecko as of Jan. 26
Biggest Declin­ers Price %7‑day return
Flare  $0.04 ‑8.6
Tok­enize Xchange $6.67 ‑2.2
Pax Dollar $1 ‑0.4
Tether $1 ‑0.3
TrueUSD $1 ‑0.2
Source: CoinGecko as of Jan. 26
Crypto companies, funds

Shares of Coin­base Glob­al Inc.
COIN
ral­lied 8.6% for the week to around $53.67. MicroS­trat­e­gy Inc.
MSTR
rose by 9.6% thus far on the week, to $242.77.

Cryp­to min­ing com­pa­ny Riot Blockchain Inc.
RIOT
surged 7.1%, to $6.19, as of Thurs­day. Shares of rival Marathon Dig­i­tal Hold­ings Inc.
MARA
were up 17.9% at $8.65, over the past week. Ebang Inter­na­tion­al Hold­ings Inc.
EBON
lost 10.9% over the past week and was trad­ing at $8.09.

Overstock.com Inc. shares
OSTK
were trad­ing up 11.3% to $22.48, over the week. 

Shares of Block Inc.
SQ,
for­mer­ly known as Square, gained 13.2% to $80.32 for the week thus far. Tes­la Inc. shares
TSLA
were up 24% to $157.99.

Pay­Pal Hold­ings Inc.
PYPL
advanced 3.6% over the week, to trade at around $79.56. Nvidia Corp.
NVDA
added 17% at $197.42 for the past week.

Advanced Micro Devices Inc. shares
AMD
obtained 10.7% to $74.92 for the week.

Among cryp­to funds, ProShares Bit­coin Strategy
BITO
went up 9.3% over the week to $14.64 Thurs­day, while coun­ter­part Short Bit­coin Strat­e­gy ETF
BITI
declined 8.8% to $27.53. Valkyrie Bit­coin Strat­e­gy ETF
BTF
increased 9% over the past week to $9.20, while VanEck Bit­coin Strat­e­gy ETF
XBTF
climbed 5% to $23.39.

Grayscale Bit­coin Trust
GBTC
were up 5.5% for the past five days to $12.13 on Thursday.

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