important point
- Bitcoin is up nearly 50% so far this year, but there is no positive catalyst from within the industry.
- Rally only macro driven, analyst writes, Nasdaq rises 16%, bitcoin continues to trade like a leveraged bet on indices
- A number of headwinds still exist, the latest being a potential regulatory crackdown, such as this week’s BUSD shutdown.
- Bitcoin and cryptocurrencies remain vulnerable to these factors and are 65% away from their highs despite their recent rally as many questions remain unanswered.
What do the following have in common?
- Crypto lender Genesis files for bankruptcy
- Parent Company DCG Announces Sale of Crypto Assets at Discounted Price
- Surge in layoffs involving Coinbase, crypto.com, blockchain.com
- SEC Sues Issuer of Binance Stablecoin BUSD, Coin Will Gradually Shrink
- Concerns over regulatory crackdown have been heightened in the context of the BUSD case, most of which is aimed at USDC, the world’s second largest stablecoin.
They are all negative news events. Still, despite these headwinds, the crypto market has been completely torn so far this year, with Bitcoin now looking down at $25,000 a barrel for the first time since August 2022.
All the bearish catalysts priced in? Maybe. Some would argue that DCG and Genesis issues were built into the price shortly after his FTX collapse in November. But BUSD’s story certainly came as a surprise. Again, should it really impact the market?
A big story unique to cryptocurrencies is the looming regulatory threat and fear surrounding projects like USDC, a stablecoin with a $41 billion market cap. Concerns about securities laws were first aroused last week when cryptocurrency exchange Kraken was fined $30 million in connection with a staking product offered by it.
In other words, has Cryptoland found a viable reason to leap this far? Bitcoin is currently up 48% year over year. where was the good news?
There’s Only One Reason Cryptocurrencies Are Rising
The answer may not be romantic, but it’s macro.Inflation is softening and markets are moving towards expectations that the Fed will turn from its tightening policy sooner than previously expected.
Whether you agree or not, the market is currently positioned as if inflation has been subdued. When it comes to prices, this means optimism is creeping in. That’s because the market expects a quicker turnaround from tight monetary policy than previously expected.
For crypto, that’s the most important thing. The asset class sits as far outside the risk spectrum as possible and trades like a very risky asset despite claims to the contrary from its proponents.
It’s no coincidence that Bitcoin plummeted last April when the Federal Reserve moved to a hawkish interest rate policy. And inflation has rebounded as it eased towards the end of last year.
There’s no better indicator than the chart below, which is a simple comparison of rates and Bitcoin prices. Again, not an overly romantic take, but it paints a pretty clear picture.
Not an overly fashionable graph, but another way to chart this is to plot Bitcoin against the tech-heavy Nasdaq index. It doesn’t look like they’ve been apart for more than a few days.
I am tempted to condemn what I consider to be an overreaction in the cryptocurrency market. But really, this is just a continuation of what we’ve seen in the last few years. When the economy is good, Bitcoin rises significantly above the Nasdaq, and when the economy is bad, it rises similarly and vice versa.
Bitcoin simply trades like a leveraged bet on the Nasdaq, which itself is glued to inflation rates and the minutes of the Federal Reserve Board.
What I have seen so far this year, I think, is the strongest argument yet that Bitcoin is simply trading like a leveraged bet on the long end of the risk spectrum. There has only been a bearish catalyst from within the sector, but it is still surging.
Meanwhile, the Nasdaq has also surged as much as 16% at the time of writing, meaning Bitcoin’s profits have nearly tripled. From his BTC all-time high in November 2021, the Nasdaq has fallen about 37% to a low. Bitcoin is down 77%.
So while bitcoin’s price hike may seem jarring in nominal terms, it’s up nearly 50% this year! – it’s not. or Much higher than we expected if we knew the Nasdaq would rise 16%.
Needless to say, Bitcoin is down 64% from all-time highs, leaving the space barren compared to the fruitful abundance of the bull market.
None of this analysis is particularly revolutionary. It has long been known that Bitcoin is an extreme risk-on asset and that its price volatility bets on macro conditions – several cryptocurrency-specific scandals (see Do Kwon and Sam Bankman-Fried ) are being thrown in. Dogwon and Sam Bankman (Fried) have been thrown in.
But it’s important to maintain this perspective when looking at Bitcoin’s astounding rally rate. Space remains very vulnerable to some serious bearishness Space is heading towards bankruptcy (and ongoing contagion from FTX) and reputation on the mainstream stage, not to mention collapsing volume and interest It remains highly vulnerable to some serious issues surrounding potential blows. It hasn’t shown much of a recovery, even in its recent rally.
Even after this run, Bitcoin is down 65% from its highs.the economy a bit I’m more optimistic than I was a few months ago, which is clearly good for Bitcoin.