Crypto Momentum Falters as Bitcoin Pulls Back to $23.6K
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Good morning. Here’s what happens:
Prices: Bitcoin shifted from flying high above $25K to dropping to $23.6K during Thursday.
Insight: Alameda Research ranked among the crypto industry’s largest market players. The collapse of parent company FTX has increasingly caused startups to delay their token launches.
Prices
Bitcoin rises past $25K early, falls below $23.5K late
CoinDesk Market Index (CMI)
1,098
-38.8 ▼ 3.4%
Bitcoin (BTC)
$23,618
−1187.6 ▼ 4.8%
Ethereum (ETH)
$1646
−54.5 ▼ 3.2%
S&P 500
4,090.41
−57.2 ▼ 1.4%
Gold
$1842
+8.2 ▲ 0.4%
Nikkei 225
27,696.44
+194.6 ▲ 0.7%
BTC/ETH prices per CoinDesk indices, as of 07:00 ET (11:00 UTC)
Bitcoin rallied again on Thursday, and investors didn’t seem to have second thoughts about spiky inflation, Fed monetary policy and turmoil in the crypto industry.
The largest digital asset by market cap recently traded at around $23,618, down 4.8% over the past 24 hours and well off its peak earlier in the day above $25,100. This mark represented BTC’s first stay above $25,000 since August, reflecting growing optimism about inflation and the economy. But both looked set to disappear within hours as an unexpected 0.7% month-on-month rise in January’s producer price index (PPI) suggested the US central bank’s monetary had yet to succeed in taming the price rises that have damaged finances for more than a year.
Industry-specific issues during the day also provided a reminder that crypto itself remained on rocky ground as investment bank DA Davidson analyst Chris Brendler downgraded Coinbase (COIN) to neutral from buy; a New York judge overseeing the criminal fraud case of Sam-Bankman Fried warned he could revoke the former CEO of disgraced crypto exchange FTX’s bond if Bankman-Fried continued to defy bail conditions; and decentralized finance (DeFi) protocol Platypus Finance suffered a flash loan attack with a potential loss of $8.5 million.
Other cryptos turn red
Ether followed a similar path to BTC, rising well above $1,700 for the second day in a row before retreating. The second largest cryptocurrency by market capitalization recently changed hands at around $1,650, down more than a percentage point. Other major cryptos have also seen seeded with APT, the symbol of the layer 1 protocol Aptos, recently falling 7.9% after rising more than 9% earlier in the day. MATIC, the native crypto of layer 2 blockchain Polygon Network was up over 6.3%, despite pairing gains from earlier. Popular meme coins DOGE and SHIB were both solidly in the red a day after rising nicely.
The CoinDesk Market Index, a measure of the overall performance of the crypto markets, recently fell by around 3.8% after spending much of the previous 36 hours in the green.
Stock markets, meanwhile, were reeling from the PPI data with tech-heavy Nasdaq, the S&P 500 and the Dow Jones Industrial Average (DJIA) all falling well over a percentage point. Investors remain wary of a strong labor market, an inflationary sign that suggests economic growth remains solid.
Still, the recent crypto rally has a number of analysts feeling bullish on prices. “US CPI has played a less influential role as more evidence shows that inflation has proven stubborn to tackle, and investors are adapting and cautiously moving into riskier assets as a way to manage the mechanism.” Adrian Wang, Founder and CEO of Digital Assets Wealth Management company Metalpha Limited, said before the downturn on Thursday.
“We can expect the market to go more bullish going forward,” he said.
And Darius Tabatabai, the co-founder of Vertex Protocol, a London-based decentralized exchange, said crypto markets seemed willing to move past the industry’s myriad problems. “The news that the SEC was investigating the BUSD earlier this week led to some pullback in prices, but with the market slowly seeming to shrug off the news and retail sales data that suggested a soft landing for inflation, we may have the possibility of another the bull market,” Tabatabai said.
Biggest winners
Biggest losers
Insight
Alameda Research’s contagion effects persist as startups delay their token launches
The crypto market is struggling with an “Alameda gap,” with several projects delaying their token launch plans due to a lack of liquidity despite rising bitcoin (BTC) and ether (ETH) prices.
Data from crypto price tracking platform CoinMarketCap shows that new coin applications fell through 2022, from 10,264 in the first quarter to 6,350 in the fourth. The fall accelerated towards the end of the year after the crypto exchange FTX and sister group Alameda Research collapsed in November. Before going bankrupt, Alameda was one of the biggest market makers, providing billions of dollars of liquidity to tokens with large and small companies.
So far this year, the number is only 3,000 applications.
“After FTX, we have seen liquidity dry up to 50% on major coins,” Guilhem Chaumont, CEO of Paris-based market maker and brokerage Flowdesk, said in an email. “At smaller market caps, the liquidity reduction has been even worse because Alameda has shut down all support for token issuers and other major market players have reduced their exposure and activity.”
Chaumont said he recommends delaying projects by three to six months. Flowdesk expects the bear market to last another 12 to 18 months.
Last month, newly decentralized exchange dYdX said it plans to delay its token unlock, which will release more than 150 million tokens to early investors and founders, until December 2023 with hopes that the market will have recovered by then. People familiar with the matter say it is because of concerns over market liquidity.
Liquidity in the bitcoin and ether markets measured at 2% market depth has dried up since Alameda went down, making it more difficult for traders to execute large orders without affecting the market price and for projects to issue new tokens.
The 2% depth represents a collection of the buy and sell orders within 2% of the mid price – the average of the bid and ask/offer prices quoted at a given time. Data tracked by Paris-based Kaiko shows that 2% market depth for BTC fell to less than 8,000 BTC in January, even as the cryptocurrency rose over 40%.
“Crypto liquidity is dominated by just a handful of trading firms, including Wintermute, Amber Group, B2C2, Genesis, Cumberland and (the now defunct) Alameda. With the loss of one of the largest market players, we can expect a significant drop in liquidity, which we will call “The Alameda Gap,” Kaiko wrote in a November briefing note.
Data from Arkham Intelligence shows that the balances of key market players have fallen. Cumberland currently has a balance of $75 million, down from about $220 million in early December; Wintermute has $122 million, compared with $1.7 billion last February and $4 billion at the end of October 2021, when the bull market peaked.
Amber Group, which gave away a sponsorship deal with British football team Chelsea in December, has been through several rounds of layoffs. Arkham says it currently has a balance sheet of $92 million, down from a peak of around $350 million in mid-2022.
This is not necessarily a bad thing, said March Zheng, co-founder and managing partner of Byzantine Capital.
“Crypto markets are cyclical in nature, but they need stress test conditions like the past few months to prove their robustness over the long term,” he told CoinDesk in a note. “New token issuance activity has been down, but it provides more opportunities for incumbents and top projects.”
Zheng points to developments in Hong Kong as positive sentiments for the market.
Meanwhile, the market continues to rally, with bitcoin pushing past $24.5K in Asian hours on Thursday while shorts were hit by significant liquidation losses.
Important events.
Blockchain Fest 2023 (Singapore)
European Blockchain Convention 2023 (Barcelona)
H1HKT/SGT(UTC): China’s foreign direct investment (Jan./YoY)
CoinDesk TV
In case you missed it, here’s the latest episode of “First Mover” on CoinDesk TV:
Bitcoin Rises to Highest Level Since August; Sam Bankman-Fried’s bond co-signers revealed
Bitcoin was just shy of $25,000, hitting its strongest level since August 15. Digital Asset Strategist Joe Orsini shared his market reaction. In addition, prosecutors asked a judge to change the terms of FTX founder Sam Bankman-Fried’s release on bond to prohibit him from using cell phones or the Internet except under very specific circumstances. Securities lawyer James Murphy weighed in after Bankman-Fried’s bond co-signers were revealed.
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Crypto Miner CleanSpark Extends Bear Market Strategy, Buys 20,000 of Bitmain’s Latest Rigs: The Bitmain Antminer S19j Pro+ machines will increase CleanSpark’s computing power by 37%.
Only 31% of stake Ether can be profitable, Binance Research: Around 2 million ETH were staked when prices were in the $400 to $600 range. These players are some of the strongest Ethereum believers, according to Binance Research.
Crypto startups are increasingly delaying token launch plans as Alameda Research’s contagion effects persist: Data from CoinMarketCap shows a sharp decline in applications for token listings as liquidity dries up.
Blur surpassed OpenSea in daily NFT trading volume on Wednesday, Nansen shows: NFT marketplace OpenSea’s dominance in the NFT ecosystem is facing a growing challenge from Blur’s rapid ascent.
