The New Year Brings Some Relief For Crypto Investors

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Lido and Solana outperform as markets recover

The first week of 2023 is shaping up to be a good week for the crypto markets.

Leading smart contract platform Ethereum saw its native token rise 5%, while Bitcoin, which recently turned 14, saw a more modest gain of 2%.

ETH Price + BTC Price, Source: The Defiant Terminal

Meanwhile, liquid staking giant Lido and beleaguered Layer 1 Solana have outperformed the broader market, rising 45% and 38% respectively over the past week.

LDO Price + SOL Price, Source: The Defiant Terminal

Solanas’ outperformance is likely attributable to the recently launched memecoin BONK, which fueled an increase in network activity.

Sale at tax loss

The tax year for individual investors in the United States ends on December 31 of each year. Savvy crypto investors potentially turned to reaping tax losses to reduce or defer their federal tax bills, putting pressure on markets in December.

Tax loss harvesting refers to investors who sell their investments at a loss to reduce their capital gains for the year or to incur capital losses that can be used to offset future capital gains.

Cryptocurrencies are currently exempt from the wash sale rule, which prevents investors from redeeming their sold assets for a period of 60 days. This is because cryptocurrencies are classified as property in the United States and wash sale only applies to securities.

In 2022, investors had to endure what some commentators consider to be the worst crypto bear market ever, with the overall market cap of digital assets losing over $2 billion.

The downward trend was exacerbated by the explosion of centralized entities alongside numerous nine-digit bridge exploits.

Bear Attack: Investors lick their wounds after Grim 2022

Global markets had a volatile year as inflation took center stage

Meanwhile, rising inflation, interest rates, and other macroeconomic headwinds have further aggravated investor appetite for risky assets like cryptocurrencies.

Liquid staking heats up ahead of Shanghai

Liquid Staking Derivatives (LSDs) have been a hot topic of discussion on crypto Twitter.

Users believe that the upcoming Ethereum hard fork in Shanghai, scheduled for March, will allow liquid staking protocols to finally accrue fees. This is due to the inclusion of EIP-4895, which allows withdrawal of staked ETH tokens.

The governance tokens of these LSD protocols have risen sharply in the past week. Lido DAOs LDO jumped 45%, Frax Finances FXS gained 16%, while Rocket Pools RPL rose 16%. Stakewise’s SWISE token gained 70%.

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