Macro headwinds are “keeping traders on the sidelines,” says CoinDesk analyst

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CoinDesk Market Analyst Damanick Dantes joins Yahoo Finance Live to discuss bitcoin’s slow start to 2022 and how retail traders are affecting crypto markets.

Video transcript

– Okay, 14 minutes to the closing bell and a President Biden press conference, but we want to turn our attention to what’s happening in the crypto markets. And we’re going to do that now, me and Emily, bringing you into the stream, Damanick Dante, CoinDesk market analyst. And it’s good to have you here.

For people who love bitcoin, and we must always point out that bitcoin may be the granddaddy of them all, but there are many other ways to invest in crypto, but bitcoin has been volatile. And it is recovering today. But you told us that spot trading volume was at its lowest level in six months. So, for crypto investors, what does this mean?

DAMANICK DANTES: It just means there has been less trading activity from previous highs. The previous volume we saw was around December 5th. And that’s kind of when Bitcoin took a little jump and then kind of pulled back. December was a difficult month, then January a bit more difficult.

So typically you have the seasonal effect, where speculative assets like stocks and cryptocurrencies tend to have a weaker start to the year in January. So we’ve seen some of these seasonal headwinds come in. Of course, you also had some macro headwinds. And these are keeping traders on the sidelines for now.

There have been talks of a possible short squeeze because the leverage has somehow been skewed towards the short side and the bitcoin options market. So we are looking that around the 40k level we have stabilized. But so far we’ve been trending lower highs since the November peak around 69,000, so the trend is more downside. So any benefit we see from here might be limited.

– Damanick, it’s Emily here. Another trend that CoinDesk highlighted is this increase in accounts or addresses that have a relatively low amount of Bitcoin, so between 0 and 100 Bitcoin over the past month. What does this suggest about future volatility and price action? Because we know, at least for equities, that the rise in retail investors led to some volatility last year. And is it the same for Bitcoin?

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DAMANICK DANTES: Yeah, it’s been interesting. So generally, as you said before, when we see retail traders coming in, it usually creates some volatility because they tend to be very short term. They buy and sell fairly quickly, rather than large account holders who hold around 100 1k BTC in their address. These account holders don’t really have much volatility. They tend to buy and hold for the longer term.

The interesting dynamic we have seen is that shorter-term holders or retail traders have been accumulating Bitcoin as the price declines. However, whales, or the largest holders of Bitcoin, have been relatively stable. So there hasn’t been much conviction behind the Bitcoin move as we’ve seen in previous bull runs.

So we need to see both stakes come into play, retail traders and long-term investors. But for now, I think the long-term headwinds from the macro point are keeping a lot of investors a bit skittish and on the sidelines. So until we see some capitulation from short sellers, buyers could come back to likely enter lower support levels where they see more of a discount in terms of Bitcoin price.

– For people who want to get into crypto, and I realize Bitcoin prices can be prohibitive unless you do some sort of splitting, but should when looking at other cryptocurrencies, par example, Solana, what are the differences that as an investor, who might be new to this, that I should consider the differences between a Bitcoin and, say, a Solana? Or are they pretty much the same thing?

DAMANICK DANTES: Yes, many investors are looking at use cases. So you want to see an increase in transaction activity and scalability over the long term. Many investors see Bitcoin as a store of value, while these other tokens, like the Ethereum Killers, are looking for more efficient solutions on the blockchain, so they can boost activities like decentralized finance and things like that.

So you really want to look at that use case and that potential for scalability that can increase in value over time. It is difficult to value these tokens. But that’s the general thing. It is very early. And you have a lot of those players. So the best will win one way or another. And you really see it in terms of the portfolio. Likewise, altcoins tend to be more speculative, higher beta, a bit more risky. And then Bitcoin is the least risky in the crypto space. That’s how you look at it in terms of relative valuations.

– I wish you had held our hands and we were about to jump into cryptocurrency assets. Best wishes. Damanick Dantes, CoinDesk Market Analyst. We hope you will return here on Yahoo Finance Live.

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