Representatives of the cryptocurrency Bitcoin are seen in this illustration, Aug. 10, 2022. REUTERS/Dado Ruvic/Illustration
Dado Ruvic | Reuters
Bitcoin’s Analysts and investors told CNBC.
Digital currencies have plummeted since the panic in 2021, which saw bitcoin climb to $68,990. But over the past few months, the bitcoin price has surged around the $20,000 level, a sign that volatility in the market has resolved.
Last week, 20-day volatility in cryptocurrencies falls below Nasdaq and S&P 500 for the first time since 2020, according to data from crypto research firm Kaiko.
Stocks and cryptocurrencies have both plummeted this year as the US Federal Reserve raised interest rates and a stronger dollar weighed on the sector.
Bitcoin’s correlation with equities has grown over time as more and more institutional investors invest in the cryptocurrency.
But the bitcoin price has stabilized recently. And for some investors, a reduction in volatility is a good sign.
“Bitcoin has essentially been range-bound between 18-25k for 4 months now, which suggests consolidation and a potential bottoming pattern, as we are also seeing the Dollar Index emerge,” Vijay Ayyar, international head at crypto exchange Luno, told CNBC in emailed comments. “
“In previous cases, such as 2015, we’ve seen BTC bottom when DXY topped out, so we could see a very similar pattern playing out here.”
Antoni Trenchev, co-founder of crypto lending firm Nexo, said bitcoin’s price stability is “a strong indication that the digital asset market has matured and is becoming less and less fragmented.” .”
End of crypto winter?
Cryptocurrencies have suffered a brutal comedy this year, losing $2 trillion in value since the peak of the 2021 rally. Bitcoin, the world’s largest digital currency, is down about 70% from its November peak.
The current so-called “crypto winter” is largely the result of aggressive tightening from the Fed, which has raised interest rates in an attempt to rein in soaring inflation. Large crypto investors with highly leveraged bets like Three Arrows Capital have come under price pressure, further accelerating the market decline.
However, some investors think the ice may now begin to thaw.
According to Ayyar, there are signs of an “accumulation phase,” when institutional investors are more willing to bet on bitcoin due to a lull in the price.
“Bitcoin being stuck in such a range makes it boring, but this is also where retail loses interest and smart money starts to accumulate,” Ayyar said.
Matteo Dante Perruccio, international president of digital asset management firm Wave Financial, said he has seen “a reverse increase in demand by traditional institutional investors for cryptocurrencies in the a time when in general you will see interest rates in the traditional market drop.”
Financial institutions have continued to take steps into cryptocurrencies despite falling prices and waning retail investor interest.
Mastercard announced a service allows banks to offer cryptocurrency transactionspreviously launched a new blockchain security tool for card issuers. Visa, meanwhile, cooperation with crypto exchange FTX to provide the debit card associated with the user’s trading account.
Goldman Sachs hinting that we may be nearing the end of a “particularly bearish” period in the latest crypto movement cycle. In a note published on Thursday, analysts at the bank said there are similarities to bitcoin’s trading in November 2018, when the price was stable for a while before steadily rising.
“Low Volatility [in Nov. 2018] followed a major bitcoin bear market,” wrote Goldman analysts, adding that “crypto QT” (quantitative tightening) occurs when investors pouring out of stablecoins like tether, reducing liquidity. The circulating supply of USD Coin – a stablecoin pegged to the US dollar – has fallen by $12 billion since June, while the circulating supply of tether has fallen by more than $14 billion since May.
Selling pressure has also slowed, as bitcoin miners reduce their cryptocurrency sales, suggesting the worst may be over for the mining space. According to Goldman Sachs, publicly traded bitcoin miners sold 12,000 bitcoins in June and only about 3,000 in September.
Wave Financial’s Perruccio expects the second quarter of next year to be the time when crypto winter is finally over.
“We will see more bugs in DeFi [decentralized finance] he added.
All eyes are on the Fed
James Butterfill, head of research at crypto asset management firm CoinShares, said it is difficult to draw too many conclusions at this stage. However, he added, “we were more mistaken in terms of upside potential than further downside.”
Butterfill told CNBC via email: “The biggest recent inflows have been in short Bitcoin positions ($15 million this month, 10% of AuM), while we’ve seen small but zero inflows.” long interruption to Bitcoin for the last 6 weeks”.
The main thing that will lead to more bitcoin buying will be a signal from the Federal Reserve that it plans to ease its aggressive tightening, Butterfill said.
The Fed is expected to raise rates by 75 basis points at its meeting next week, but officials at the central bank reported consider slowing growth in the future.
“Customers are telling us that once the Fed pivots or is close to getting there, they will start adding positions in Bitcoin,” Butterfill said. “The recent liquidation of mesh shorts is in sync with what we are seeing from a capital flow perspective and implies that short sellers are starting to invest.”
