The price of bitcoin (BTCUSD) has risen by more than 26% since the beginning of the year, dynamically breaking through resistance near US$18,000. Currently, the price of the largest cryptocurrency is at levels before the collapse of the FTX exchange. The thaw in bitcoin appears to have pulled most of this market down. The average increase for the 80 largest cryptocurrencies since the beginning of the year is 37%. Is this already the start of a new bull market in this market, or is it just a so-called "dead cat bounce"?
Why these increases in the crypto market?
Significant rises in cryptocurrency prices appear to have followed Tuesday's conference by Jerome Powell, head of the Federal Reserve. Analysts may have interpreted his words as announcing the end of the interest rate hike cycle. Just two days later, we saw another reading of falling CPI inflation in the US from 7.1 to 6.5% year-on-year, which could also drive cryptocurrency listings. Today, the prices of many of them have returned to pre-crisis levels related to the bankruptcy of FTX, the third largest cryptocurrency exchange.
Source: Conotoxia MT5, BTCUSD, Daily
The collapse of cryptocurrency exchanges, which tended to play with their customers' money for their own account, may have significantly cleansed this market. The winner in this process now appears to be the Binance exchange, which has increased its level of trading share to 66.7%. The company has registered with the Swedish financial regulator to continue its regulation in Europe, having already done so in several EU countries, including France. In addition, Binance.US, the platform's US division, announced that it is buying the assets of bankrupt platform Voyager Digital for $1 billion, which would allow Voyager customers to recoup some of their deposits. The exchange also announced that it intends to hire 3,000 people in various positions by 2023. The value of the BinanceCoin (BNBUSD) cryptocurrency, which seems to have followed the company's success and failure, has grown by more than 21% since the beginning of the year.
Source: Conotoxia MT5, BNBUSD, Daily
What could we expect in the future?
Director of Strategy at Wave Financial Les Borsa announced: "Bitcoin and crypto tend to run ahead of equities when it comes to macro shifts and pivots, so we’re probably seeing signs of this happening right now. It seems as though more and more investors are gradually allocating more and more capital to Bitcoin and crypto. This will likely continue, and possibly accelerate, barring any exogenous shocks to the macro situation".
Looking at the current macroeconomic schedule for the US main market, the key data we may learn about on Wednesday, in the form of the PPI inflation reading, as well as on 1 February, in the form of the FOMC interest rate decision. By these publications, however, we could expect a correction after a series of dynamic increases.
What does the indicator say, without which the increases may not last long?
Stablecoins in the cryptocurrency world play a similar role to the amount of money in an economy controlled by central banks. Last year, their total market value fell by 14%, and according to StablecoinPrinter's twitter profile, December 2022 was the first month with almost no new tokens in circulation. Currently, their market value is falling month-on-month by more than 2%. It seems that until we see a change in this trend, it would be difficult to see stable growth for the digital currency market. The lack of new funds to purchase cryptocurrencies such as bitcoin, for example, may reduce its chances of long-term growth. However, if the situation changes, we would be able to see this on the stablecoin market capitalisation index.
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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