Crypto trading firm Cumberland predicts a wave of volatility and then a possible uptrend

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Recently, crypto trading firm Cumberland DRW LLC, which is a subsidiary of private trading firm DRW Holdings, took a closer look at the crypto market following the collapse of FTX and Alameda Research.

On December 12, 2022, Cumberland said on Twitter:

After a busy month, price action is consolidating. Given the nature of cryptography and the tectonic changes occurring beneath it, we do not expect this paradigm to last. While this may be a holiday phenomenon, the sentiment is gloomy, dozens of crypto companies are either severely downsized or bankrupt, and the future of the industry is cloudier than ever. That said, prices have reached a surprisingly dynamic equilibrium, far from the lows of the year.

Explaining this dichotomy is key to predicting price action. Why are we here in the first place? After the euphoric highs of 2021, crypto markets have spent most of 2022 realigning with more restrained tech valuations. Luna and FTX served as accelerators, stripping oxygen from loan markets and forcing liquidations into a vacuum.

In the wake of billions of dollars in these liquidations and trillions of dollars in lost market capitalization, the next stage of price action depends almost entirely on whether or not there are more sellouts. coming. While there are indeed a handful of portfolios under the control of bankruptcy administrators and the assets they contain will certainly need to be unwound over the months and years to come, it is becoming increasingly clear that in the most scenarios, the market is actually facing a crypto deficit, not a surplus.

FTX, Alameda and a wide range of insolvent lenders would not have filed for Chapter 11 protection had they not already sold all of their liquid assets in a last-ditch effort to expand the runway. In other words, you don’t go bankrupt if you have any tradable coins left to sell. Perhaps what we have seen over the past few months has been the mass liquidation of these coins. Meanwhile, there are over a million depositors who thought they held crypto, but now only hold distressed claims on assets that have been locked up for years (at best) or permanently lost. Eventually, some of these people and entities may decide to buy out/replace.

Looking forward to 2023, the sources of market recovery will be adoption-related. Against the backdrop of an armed dollar, China and Russia are quietly deregulating bitcoin and increasing its geopolitical relevance. Big tech companies with billions of users are pursuing their blockchain integration technology. The volatility of this asset class has captured the attention of the full spectrum of retail and institutional investors. We do not foresee a prolonged paradigm of indifference and price stability. Instead, we expect a wave of volatility as the market rewires and web3 trading models recalibrate. This will be followed by a possible uptrend.

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