Why Bitcoin Surged 40% in January Despite Crypto Industry Carnage

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Welcome to Distributed Ledger. Meet Frances Yue, crypto reporter at MarketWatch.

Bitcoin has been off to a flying start this year, surging nearly 40% so far, even though crypto lender Genesis filed for bankruptcy last week, just months after the exchange implosed. FTX digital assets in November. In this episode, I’ll break down what’s driving the biggest cryptocurrency rally.

Find me on Twitter at @FrancesYue_ to share your thoughts on crypto, this newsletter, or your personal stories with digital assets.

why the rally

It’s not just crypto, most markets tend to do well in January as fund managers rush to roll out money at the start of a year, according to Ivan Ivanchenko, managing partner at Phinom Digital. . In fact, most risky assets have risen so far this year, with the tech-heavy Nasdaq Composite posting an 8.8% gain, according to FactSet data.

Meanwhile, bitcoin was shorted heavily in November and December after FTX crashed. As the price of crypto unexpectedly rose in January, some short sellers were forced to close their positions and buy bitcoin, pushing the price of crypto even higher.

Bitcoin’s rise also comes as investor confidence has picked up, noted Luuk Strijers, chief trading officer at crypto derivatives exchange Deribit.

After the FTX implosion in November, the number of open contracts for bitcoin futures and options on Deribit reached an all-time high, indicating a high level of activity, Strijers noted. That’s because people were anticipating the worst, which forced them to hedge their holdings to protect more downside moves, Strijers told Distributed Ledger in an interview.

Fear and panic in the crypto market may ease slightly in January, with several signals in the derivatives market suggesting a return of institutional interest. The spot price of bitcoin is below futures prices, showing that traders believe the price of bitcoin will rise, according to data from multiple exchanges.

Additionally, there are more call options being traded in the market than put options, signaling a rise in bullish sentiment, Strijers noted. Call options allow traders to buy an asset at a predetermined price, while put options allow traders to sell an asset at a predetermined price.

And after

Despite the recent rally, Phinoms Ivanchenko expects bitcoin to drop further, which could fall below its previous low of $15,480, Ivanchenko said. I prefer to think that the market currently presents more risks than opportunities, Ivanchenko said. We don’t know how weak some links are.

The macroeconomic environment remains challenging, with inflation still high and a possible recession underway, at least in the United States. It’s also unclear how Genesis’ bankruptcy might affect other companies, including its parent company Digital Currency Group and its sister company Grayscale Investments, which owns the world’s largest bitcoin fund, GBTC, Ivanchenko noted.

Read: Jeremy Grantham says the easiest stage of the stock market bubble burst is over. Here is the continuation.

Meanwhile, after the collapse of several major crypto companies last year, regulators can easily push the market to new lows, Ivanchenko said.

Deribits Strijers has a different view. He expects the rally to continue with the market in recovery mode.

The impact of the FTX and Genesis implosions on most major crypto companies is already known and understood, Strijers noted. I think people realize that, and the Genesis problem, while serious and unstable, is manageable, Strijers said.

Tesla crypto holdings

Tesla did not buy or sell bitcoin in the fourth quarter of 2022, although the largest cryptocurrency fell to a two-year low of $15,480 in November after FTX filed for bankruptcy. Tesla invested $1.5 billion in bitcoin in early 2021 as the crypto traded above $30,000.

Still, the electric car maker posted a $34 million impairment loss in the fourth quarter, recording the value of its digital assets at $184 million on December 31, from $218 million on September 30.

Crypto at a Glance

Bitcoin prices have risen 10% over the past week and were trading at around $23,027 on Thursday, according to data from CoinDesk. Ether ETHUSD, -2.31% gained 5% over the same period to hit around $1,601, according to data from CoinDesk.

Biggest Winners Prizes 7 Day % Return Aptos $18.32 139.5 Fantom $0.49 63 Axie Infinity $11.64 44.6 BTSE $3.01 42.6 eCash 0.00004 $42.5 Source: CoinGecko as of Jan 26 Dollar $1 -0.4 Tether $1 -0.3 TrueUSD $1 -0.2 Source: CoinGecko as of Jan 26 Crypto Companies, Funds

Shares of Coinbase Global Inc. COIN, +0.49% rose 8.6% for the week to around $53.67. MicroStrategy Inc. MSTR, -0.21% is up 9.6% so far on the week, at $242.77.

Crypto mining firm Riot Blockchain Inc. RIOT -1.61% jumped 7.1% to $6.19 on Thursday. Shares of rival Marathon Digital Holdings Inc. MARA rose 17.9% to $8.65 over the past week. Ebang International Holdings Inc. EBON, -4.31% lost 10.9% over the past week and was trading at $8.09.

Shares of Overstock.com Inc. OSTK, +1.80%, were trading up 11.3% at $22.48, during the week.

Shares of Block Inc. SQ, +0.52%, formerly known as Square, gained 13.2% to $80.32 for the week so far. Tesla Inc. shares TSLA, +10.97%, up 24% to $157.99.

PayPal Holdings Inc. PYPL, +2.16%, advanced 3.6% on the week, to trade at around $79.56. Nvidia Corp. NVDA +2.48% added 17% to $197.42 last week.

Advanced Micro Devices Inc. shares AMD, +0.33% gained 10.7% to $74.92 for the week.

Among crypto funds, ProShares Bitcoin Strategy BITO, +1.03% was up 9.3% on the week to $14.64 on Thursday, while its counterpart Short Bitcoin Strategy ETF BITI, -0.93% was down 9.3% on the week. 8.8% to $27.53. Valkyrie Bitcoin Strategy ETF BTF, +0.66% rose 9% over the past week to $9.20, while VanEck Bitcoin Strategy ETF XBTF, +1.11% climbed 5% to 23.39 $.

Grayscale Bitcoin Trust GBTC, +1.07%, is up 5.5% over the past five days to hit $12.13 on Thursday.

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