Traders grow wary of ‘unloved’ bitcoin rally
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Cryptocurrency trading activity has dwindled even as bitcoin enjoys its longest winning streak in more than two years, in a sign that many investors are increasingly reluctant to buy into the rebound after a string of collapses and scandals in 2022.
The price of bitcoin, the most popular token, has risen 70 per cent this year, helping the market regain some momentum following the failure of companies like exchange FTX.
Investors have shrugged off lawsuits from US regulators against companies such as Binance, the industry’s largest exchange, and the collapsed stablecoin operator Terraform Labs, as authorities have sought to clamp down on activity they see as illegal.
However, the price of bitcoin has since been stuck in a rut for more than a month, trading in a narrow range around $28,000. That pause has been accompanied by thinning volumes, with small trades increasingly able to move market prices.
“While bitcoin’s recent performance is great on the face of it, many in crypto are calling this year an unloved rally,” said Charles Storry, head of growth at Phuture, a crypto index provider.
“Sentiment hasn’t changed, and regulatory scrutiny is sidelining a lot of new money that might otherwise enter the space. Price movements don’t mean much if the industry isn’t making meaningful progress to regain trust and attract new investors,” he added.
A bruising 2022 has left investors nursing losses or funds trapped in limbo as failed cryptocurrency lenders and exchanges go through bankruptcy proceedings in the courts.
Crypto enthusiasts also argued confidence has been renewed by the weakness in the global banking sector, and the vast outflow of deposits from banks such as the US’s Silicon Valley Bank and Silvergate, and Credit Suisse in Switzerland.
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“That rally we experienced after the banking crisis earlier this year seemed to be directly related to a flight for safety and self-custody of funds away from the dollar,” said Edmond Goh, head of trading at crypto broker B2C2.
But that sentiment has been undermined by a host of signals coming from crypto markets. Analysts point out that the rally in cryptocurrency prices was already built on a thinly traded market.
The degree to which a market can absorb large orders without major changes to the price of bitcoin has declined since the start of the year, according to data provider CCData.
In January it would have required the purchase of more than 1,400 bitcoins, roughly equivalent to $23mn at the time, to move the price of the token by more than 1 per cent of its prevailing market value, CCData said.
![Line chart of Sum of daily orders within 1% of prevailing market price on Binance showing Bitcoin liquidity on the decline](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F3d528670-e9be-11ed-adfd-ab8dcae15b6c-standard.png?dpr=1&fit=scale-down&quality=highest&source=next&width=700)
Towards the end of last month it would have taken only 462 bitcoins, worth about $13mn, to move market prices by 1 per cent, the lowest point of market depth for the bitcoin-tether trading pair since May 2022, when the industry plunged into crisis.
“Prices are recovering, but liquidity has yet to return. No exchange or market maker has yet to fill the space that FTX and [its sister trading arm] Alameda once encompassed,” said Michael Safai, managing partner at crypto trading firm Dexterity Capital.
Investors who have bought into bitcoin in recent months are now holding on to their investments.
Glassnode, a crypto data provider, said “there has been remarkably little expenditure” by investors who bought bitcoin when it hit a two-year low after FTX’s failure last November.
“The ‘FOMO’ that drove a lot of first time institutional and retail investors last year is obviously not happening now, despite the fact the crypto markets have rallied significantly this year,” said one crypto fund manager based in Dubai, referring to a fear of missing out.
Moreover, there have been outflows of $72mn over the last two weeks in digital asset investments, ending a six-week run of consecutive inflows, according to CoinShares. The crypto investment group ascribed the trend to the likeliness of further interest rate increases by the US Federal Reserve.
![Line chart of The price of bitcoin ($000) showing Bitcoin’s rally loses momentum as investors cool on crypto](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F54909330-e906-11ed-b938-710f7ac32c89-standard.png?dpr=1&fit=scale-down&quality=highest&source=next&width=700)
Traders are also worried that the heavy clouds that have overshadowed the industry for the past 12 months have not fully gone away. Binance, the world’s largest crypto exchange, is likely to be pulled into a drawn-out lawsuit with the Securities and Exchange Commission.
Another cloud is the fate of Genesis, one of the biggest lenders in the crypto market, which filed for bankruptcy in January owing more than $3bn after the implosion of FTX.
Owner Digital Currency Group, one of the world’s largest owner of bitcoins via its asset management arm, is looking to raise funds to pay back Genesis creditors. DCG said last week some Genesis creditors had walked away from a previously agreed restructuring deal.
The market appears to be “in a holding pattern pending the resolution of DCG’s debt payments”, said Ram Ahluwalia, chief executive of investment adviser Lumida Wealth Management.
The uncertainty, along with the crisis in the US regional banking industry, has underscored for many that the market is still working through its many issues.
“There still isn’t a lot of organic momentum behind cryptocurrencies,” said Safai. “The headline events that propel cryptocurrency prices past sticking points . . are few and far between.”
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