This is an editorial opinion by Francois Moreau, fintech writer and financial risk analyst based in Paris.
The Fed’s rate hikes have rattled markets, and speculative assets like bitcoin are among the hardest hit. Although it was once touted as a non-correlative asset compared to the equity market, bitcoin’s beta has finally come to a head as it is worth nearly twice as much as the struggling stock market.
However, recently, it appears that the coin has stagnated below $20,000. In this apparent consolidation, some fear that it may be just hitting the previous support floor and that bad bitcoin news will lead to further declines.
Some are more confident in the coin.
According to them, this consolidation is a strong sign from the bottom, and the support that creates the bitcoin range is a sign of a strong future. Whether the coin will take it back to its previous all-time high of nearly $70,000 remains to be seen – but some are cautiously optimistic.
Collect Statistics
According to crypto research giant Kaiko, the volatility of the $201B cryptocurrency market fell below standard market benchmarks. This is a harbinger of solid consolidation, although a stronger US currency and more attractive fixed income assets are distracting investors.
In fact, for some, bitcoin’s stability is the best news of the year.
The head of the Luno exchange Vijay Ayyar reinforced the thesis that consolidation is an indicator of future stability or further progress rather than further crashing, saying that “Bitcoin has been largely tied between $18-25K for four months now, indicating consolidation and the possibility of a downward pattern. , because we look at the Dollar Index above as well.
Calling the bottom (or top) is as much an art as a science, with a healthy dose of luck needed, but Ayyar relies on past trends to make an estimate: “We have seen the bottom of BTC when DXY has been at the top of the month, as in 2015, so we can witness the same pattern again.
Others in the industry agree; Antoni Trenchev of the lending company Nexo said that the consolidation and reduced volatility are “strong evidence that the digital asset industry is maturing and becoming less fragmented.”
What is Spring Sprung?
As the rest of the equity market fell by “only” around 20%, bitcoin dropped by that time, losing nearly $2 trillion in net value and falling by over 50% just this year. It has fallen by almost 70% compared to the peak of $68,543 in November 2021. This fall destroyed the class of investors who saw bitcoin as a hedge or a means of diversification in their portfolio, because the coin proved its relationship with stocks.
As I have said, and you must have heard it endlessly parroted since October 2021, the fall is mainly due to the Federal Reserve’s efforts to reduce inflation. These efforts have proven largely inconsequential so far, requiring rate hikes of more than 75 BPS at a time with no end in sight.
The correlation problem is that many large institutional crypto bulls build up huge positions, then are forced to avoid margin calls, which ultimately causes prices to fall as the asset is sold for a relative discount.
Some call this nuclear fallout in the field of crypto, precisely, the future of crypto. Some, like Three Arrows Capital, even lost their entire company because of the slow decline – the company lost more than $3B of investors’ money before it collapsed.
Returning to Ayyar, stability refers to a “period of accumulation.” The accumulation may indicate a willingness to temporarily return to bitcoin for funds, companies and investors, as the model shows a range of undervalued $ 20,000.
“The fact that bitcoin is stuck in that range makes it boring, but this is also the point where retail investors lose interest, and the smart money starts to collect,” Ayyar said.
Not only that, but many family offices are expanding their crypto holdings as they also seek to diversify and increasingly offer alternative investments to their clients. Digital asset management fund president Matteo Dante Perruccio reinforced this trend by pointing to a “counterintuitive spike in demand” from big money and smart money. This could be a move towards diversification or, as it were, looking for significant progress as suggested below.
Bitcoin miners have also reduced their crypto sales. When this happens, selling pressure also falls, another harbinger of positive movement in the future of the coin and the mining industry at large. Analysts from Goldman Sachs said publicly traded bitcoin miners sold around 3,000 bitcoins in September compared to 12,000 in June.
Back to Perruccio: he predicts that the future of crypto will be destroyed in Q2 2023. “For the market to develop,” he said, “we will see more failures in DeFi [decentralized finance] arena and many small companies.
Even financial service providers are not ignoring crypto.
Joining the trend, Mastercard has just released an option for banks that enable crypto trading alongside traditional accounts. Also, Visa has partnered with the FTX exchange to bring debit cards to the market that connect directly to trading accounts and help users ensure cash flow when speculating, spending, and managing the transition from cash to crypto (and vice versa).
Fed Watch
Head of Crypto Research at alternative asset management firm CoinShares James Butterfill is a little more cautious, warning investors that it’s difficult to make many predictions before more information and data comes out. “We err on the side of the possibility of a higher rise rather than rejecting the price further,” he said.
“The biggest withdrawals recently have been in short-bitcoin positions, while we’ve seen small but consistent inflows into long bitcoin over the past six weeks,” he told CNBC via email. He then added, “The Federal Reserve’s statement that it intends to reduce aggressive tightening will be a major factor driving bitcoin adoption.”
The Fed is expected to go ahead with an additional 75 BPS hike. Still, some also see a pivot on the horizon back to the easy (or simpler) days: “Clients are telling us that they will start increasing their positions in bitcoin if the Fed pivots, or is close to it,” Butterfill said. “The recent liquidation of net shorts is consistent with what we have observed in terms of cash flow and suggests that short sellers are starting to give up.”
Conclusion
So what’s the bottom line? Unfortunately, the future is unpredictable, and we can only manage our expectations according to trends, data, and our thesis about coins. For bullish investors, however, the recent reduction in volatility is a good sign – and institutions seem to agree.
Addendum – FTX And Its Dramatic Effects On Crypto Capital Markets
Sometimes you talk too fast, and in the case of Bitcoin’s reduced volatility, unforeseen circumstances force the metaphorical groundhog back into the hole for the full period of another crypto future.
Midway through the month, cryptocurrency exchange FTX, previously the third largest and seen as widely beyond reproach, collapsed in the usual mess of financial mismanagement and tabloid-style personal intrigue.
While the latter is undoubtedly good fodder for rumors, the essence of what happened and how it will affect Bitcoin moving forward lies in the former. In short, the emergence of mismanagement led to the uncovering of real abuses as the largest exchange, Binance, announced they will close the position in FTT owned by FTT coin based on the perceived conflict of interest between FTX and the trading company Alameda. The announcement resulted in an effective bank run on FTX as thousands of customers withdrew or cashed out their coins, causing a liquidity crisis as FTX failed to deliver customer withdrawals.
I told you it’s complicated, and that’s just scratching the surface. But what matters now is the effect we are seeing on the Bitcoin capital market.
Despite the period of consolidation and accumulation as Bitcoin remains effectively “flat,” the news of the FTX collapse and a shadow of doubt cast over the crypto arena. After just one week of increasing information, Bitcoin fell to a two-year low of $15,480, bringing the total market loss for the year to around $1.5T.
Some see the collapse of FTX as the final nail in the crypto coffin, surrounding the loss of stability of the stablecoin UST and the widespread failure of the former monolithic crypto-focused fund that seemed to bring legitimacy to the market as a safe-haven. It is unclear whether the season will continue. However, increased regulation is almost at stake as agents from the Securities and Exchange Commission, the Justice Department, and other government giants gather pieces of FTX to figure out what happened and how to prevent it in the future.
Even the most optimistic Bitcoin bulls see the future of the crypto beyond 2023, so it is better to be ready to hunt for another ride.
This is a guest post by Francois Moreau. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.