Is Bitcoin Profiting from the January Effect?

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Block 1: Essential news

Amazon is accelerating into the cryptosphere

Amazon was planning to launch a digital asset service, including one based on NFT. The project will mainly focus on blockchain-based video games and related NFT applications.

Coinbase fined 3.3 million euros

The Dutch Central Bank (DNB) imposed this fine for operating in violation of local anti-money laundering and counter-terrorist financing law between November 2020 and August 2022. The DNB said that Coinbase Europe Limited would have received a competitive advantage due to its late registration. Coinbase has until March 2 to contest the fine and said it was based on the time it took to get the record.

Porsche: Stoppage for the NFT collection

Huge setback for Porsche in the launch of its NFT collection. The prestigious car brand launched a collection of 7,500 NFTs, but the success was very mixed with only 25% of the NFTs sold in 48 hours. The price was set at 0.911 ETH (about $1350) in reference to the brand’s 911 model. Due to community dissatisfaction, Porsche suspended the process of creating NFTs (Mint) and reduced the amount of NFTs in circulation. Failure is attributed to too high a price and poor communication. The roadmap was unclear and potential investors were unsure why they should buy this NFT and what the concrete use cases would be associated with it. It seems that Porsche went a little too fast in the Web3 adventure.

Cryptocurrency adoption up 39% in 2022

The number of cryptocurrency holders reached 425 million in 2022. A report by Crypto.com shows that despite difficult market conditions and an anxiety-provoking macroeconomic atmosphere, the crypto ecosystem continues to attract new users. In January 2022, there were 306 million cryptocurrency holders worldwide. In December, that number reached 425 million, an increase of 39%. The end of the year saw a particularly strong increase.

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Number of cryptocurrency holders worldwide

Crypto.com

Block 2: Crypto Analysis of the Week

Does Bitcoin, and the cryptocurrency market more broadly, benefit from what is known as the “January effect”? This unique month where returns are on average higher than others and where small cap stocks often have an exceptionally strong month.

We don’t know exactly what causes the January effect. But we have some ideas. The end of December marks the end of the fiscal year and a key period for fund managers with their investors and for banks with their regulators. So a lot is happening at the end of December, which could indirectly influence trading behavior in January.

One of the most important factors is probably the harvesting of tax losses. For individual investors, it may be interesting to sell losing securities before the end of the year and thus realize a tax loss. So the theory suggests that productive stocks with little momentum – or those that have literally been hammered like 2022 – can have a good January as they rebound from a December fiscal sell-off.

And for bitcoin, the rally at the start of the year is part of a larger trend in financial markets where we have seen the riskiest and ultra-speculative stocks clearly rebound. Take meme stocks – stocks of companies that have often become popular topics on social media, and see their stock prices rise dramatically from time to time due to crowds – which can be represented by the Roundhill MEME ETF , which includes stocks such as AMC, Robinhood and Gamestop, among others. It was up 22% at the start of the year after being taken down in 2022, losing more than 60%, much like bitcoin. We can also look at Cathie Wood’s Ark Invest Innovation fund, up 25% at the start of the year

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Since the beginning of January, bitcoin seems to have benefited from the renewed appetite for ultra-risk in traditional finance, as evidenced by the surge in these speculative stocks. More generally, this gives the impression that investors are hoping 2023 will be more like 2021 than 2022. It makes sense that January’s effect would be more pronounced this time around, given how brutal 2022 was for nearly everyone types of investment. Tied to bitcoin and cryptocurrencies, it’s safe to wait a little longer before selling the bearskin for good.

Block 3: Tops and flops

Cryptocurrencies in terms of capitalization (Click to enlarge)

MarketScreener

Block 4: Readings of the week

ChatGPT is coming to classrooms. Don’t Panic (Wired)

Most Crypto Criminal Funnels Via Just 5 (Wired) Exchanges

People don’t read books (The Atlantic)

How Could Crypto Deal Activity Resume Soon? The Last Misfortunes of Gemini and DCG (The Information)

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