Catalysts abound for Crypto Rally

There is still a long way to go to regain all-time highs and crypto naysayers will continue to criticize, but there is no doubt that cryptocurrencies will skyrocket in early 2023.

Bitcoin and ether, the two largest digital currencies by market capitalization, were up on Thursday by 50% and more than 40%, respectively, so far this year. Even with the impressive start, bitcoin needs to more than double to regain its all-time high. It’s asking a lot, especially in the short term, but there are reasons to believe that bitcoin and its ilk could generate more upside.

Among the positive catalysts for bitcoin are institutional buying and growing appetite for risk assets in the crypto space.

“A big move in Bitcoin is upon us. There has been a huge wave of institutional money entering the exchanges in the last week, $1.6 billion according to data from Lookonchain. Much of this money is leaving stablecoins, including Circle- issued USD coins The fate of stablecoins will be decided in the near future, but many do not expect regulators to crush the entire space, said Edward Moya, senior market analyst at Oanda.

He added that the longer bitcoin stays solid without wavering, the less patient sellers will become. While the sellers’ departures are unlikely to be permanent, they are likely to clear the way for bitcoin to continue its climb in 2023. Translation: Short covering is likely to play a role in bitcoin’s 2023 rebound.

“Short covering can also contribute to jumps in cryptocurrencies. Short covering occurs when a short seller buys back shares to close an open short position – returning borrowed shares – in an attempt to limit losses. This also increases the price of the underlying the security further,” reported Hakyung Kim for CNBC.

Another point in favor of the broader crypto space is the fact that market participants are not selling simply because of increasing regulatory pressure. Indeed, Wednesday’s price action in bitcoin, crypto-correlated stocks and exchange-traded funds indicated that investors were buying in the face of intensifying regulatory efforts.

“The regulatory actions were initially dubbed ‘Operation Choke point,’ leading to fears that crypto was being actively removed from the banking system, with an attack on stablecoins and custody rules,” Bernstein analyst Gautam Chhugani wrote in a report to clients Thursday.

Chugani added that many investors are under-allocated to or have no exposure to crypto funds at all, and as these fund flows increase, prices may follow suit.

“The liquid crypto assets we’re talking to have had fairly conservative exposure levels. While new capital may have been slow to enter the space, there is still sufficient capital undeployed in the crypto fund ecosystem, which has largely remained risk-off so far,” the analyst noted.

For more news, information and analysis, visit Crypto channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.