Last November, reeling from the sudden demise of the FTX crypto exchange, Bitcoin lost more than 15% of its value. Analysts were puzzled, though, about how Bitcoin prices could tread water as high as $17,000 by the start of December. It must be “trust hasn’t been shaken to the core,” suggested Hany Rashwan of 21.co.
To be sure, anyone who’s been involved in Bitcoin trading or reading the news knows that we learned some hard lessons about digital currency in 2022. Jason Pride and Michael Reynolds of Glenmede explain that “even Bitcoin, the oldest cryptocurrency, continues to be more volatile than stocks and bonds, precluding it from being a viable store of value.” They also point out that we now know Bitcoin can’t be relied on to stay steady during stock market crashes.
After the FTX bankruptcy, shares in Bitcoin mining companies like Riot and Hive sunk, as did shares in crypto exchange Coinbase, crypto firm BlockFi, and crypto bank Silvergate. Recalling 2018 and 2020, we know the crypto industry tends to experience dramatic plunges and recoveries, but does this adequately explain what’s happening in the crypto space today? If you are one of our readers who enjoy CFD Bitcoin trading with iFOREX, join us for a discussion of the question.
A Kickstart in January
On the 11th of January, Bitcoin had already gained about 10% for the new year, and Ether was up as much as 17%, as both coins emerged from a painful year of 60% losses. The feeling in the world of Bitcoin trading was that, since US inflation seemed to be cooling down, there was a strong likelihood the US Federal Reserve would slow its rate hikes, which would help out risk assets like cryptocurrency. As to institutional interest, “there is little doubt that large players will come back into the market when the outlook is less murky,” pronounced crypto analyst Noelle Acheson.
By 17th January, risk assets tracked on the S&P 500 had gained 4% for 2023, and the Nasdaq 100 had seen gains of as much as 6%. On the back of this sentiment, Bitcoin had continued to rise – making up 13 consecutive gains in the green – topping the $21,000 mark. More than this, Riot Platforms and Coinbase Global shares had also started convalescing. Bear in mind that the daily trading volume in Bitcoin trading was down from around $75 billion a year before, to only $48 billion, making crypto markets more sensitive to low levels of volatility.
Following this, Noelle Acheson celebrated that “macro investors are coming back in… and BTC is the gateway asset”. The advent of stronger and clearer regulatory guidelines for the industry could support this trend, says John Avery of FIS. One company that could reap the benefits of these developments is Coinbase, in the opinion of Fadi Massih of Moody’s Investor’s Service, because of its established position in the industry.
In June 2022 (also a turbulent time in the sector), Coinbase had to get rid of 1,100 employees, and they followed up early this year by laying off another 950. In 2021, Coinbase shares would cost you around $370 each, but they were down to a comparatively tiny $43 in the second week of January 2023. Still, CEO Brian Armstrong had no doubts that the company “is well capitalized, and crypto isn’t going anywhere.”
In the CEO’s view, the crypto drama of November was due to a few “unscrupulous actors in the industry,” but he admitted, “there could still be further contagion.”
“Moving forward,” says TD Ameritrade’s Shawn Cruz, “… I think you need to see general broad-based interest” on the part of institutions to buoy up the industry sustainably. This is something to watch for as regulatory bodies set out the official guidelines for the embattled industry in months to come.
As to how the industry should be reshaped, “There has been a lot of fluff in the past bull market,” says Hany Rashwan. “People were chasing exuberance.” The expectation is that the sector will focus on real-world usefulness from this point on, given the bursting of the speculatory bubble in recent months.
Readers involved in CFD Bitcoin trading on the iFOREX platform will know that Bitcoin’s two-week streak of gains ended just after mid-January, as some of the enthusiasm drained out of risk assets like stocks. Strategists discussed whether this looked likely to be a short-term correction or not. Meanwhile, Genesis Global Capital was preparing to file for bankruptcy at about the same time amid the ongoing ripple effects of the FTX collapse.
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