Cryptocurrencies Continue to Grow as Some Say Crypto Is ‘Through the Bear Market’
Cryptocurrencies push higher in 2023 despite a banking crisis, rising interest rates and a host of new legal and regulatory headaches for the nascent industry.
Bitcoin, the largest and best-known digital currency, rose 69% in the three months ended March 31, while ether, the second largest, was up 51%. Bitcoin (BTC) is currently hovering near $28,000 while ether (ETH) climbed above $1,900 per coin on Wednesday, the highest level since last September. Both are relatively flat in the last 24 hours.
Even Dogecoin (DOGE), a cryptocurrency that began as a joke, shot 30% higher on Monday after Elon Musk replaced Twitter’s bird icon with Dogecoin’s Shiba Inu logo. Doge lost some of those gains Thursday when Twitter’s logo was switched back.
SkyBridge Capital founder and managing partner Anthony Scaramucci told Yahoo Finance on Thursday, “I would guess right now that we are through the bear market” in cryptocurrencies. “If something happens to Binance, I think it will be a short-term hit,” he said.
Skybridge experienced some challenges last year when some customers asked to withdraw their money. It also sold a 30% stake to crypto exchange FTX before the exchange collapsed. Total assets under management at Skybridge had fallen to $1.8 billion by the end of 2022, down 50% from the previous year and down 80% from a peak of $9.2 billion in 2015.
But Scaramucci remains confident in his firm’s crypto investments. “Every time you’ve held bitcoin for a four-year rolling interval, so you pick the day, hold it for four years, you’ve outperformed every other asset class,” Scaramucci said.
The rapid rise of digital currencies is one of the year’s big market surprises after a 2022 crash cost investors billions as higher interest rates and inflation eroded the value and appeal of risky assets.
Several crypto players filed for bankruptcy, including FTX in November. FTX’s former CEO Sam Bankman-Fried now faces criminal charges for stealing billions in FTX customer funds and misleading investors.
“It’s a bounce back from the really poor performance we saw in 2022,” VettaFi head of research Todd Rosenbluth told Yahoo Finance on Tuesday.
What gave the market extra momentum this year, ironically, was a banking crisis in March that brought down three lenders, including two that specifically serviced cryptocurrency clients.
Some investors chose to seek out cryptocurrencies as a safe haven from the perceived instability of banking. Others predicted that the Fed would have to cut interest rates in response to the crisis, prompting more flows into alternative risk assets.
Since March 10, the day regulators seized Silicon Valley Bank in the second largest bank failure in US history, bitcoin is up more than 33% and ether is up more than 26%. The total value of all crypto assets is up more than 22% during this period, as of Friday at 8:30 a.m. ET.
Regulatory pressure ramps
This year’s crypto comeback is unfolding itself as Washington regulators step up efforts to rein in this market.
The Securities and Exchange Commission has issued 11 enforcement actions since early January against crypto firms and individuals, while delivering formal letters to Paxos, DeFi Exchange Sushi and Coinbase Global (COIN) warning the agency to initiate an enforcement case. Coinbase is the largest US crypto exchange.
Coinbase shares are up 73% so far this year, but are still two-thirds below their value a year ago.
Another regulator, the Commodities and Futures Trading Commission, has also sued crypto exchange Binance and its CEO Changpeng Zhao for allegedly selling derivatives backed by digital assets to US customers despite not being registered to do so.
“This industry is not in a good position of trust right now with the public, with investors, with customers,” CFTC Commissioner Christy Goldsmith Romero said Wednesday at the Links NYC conference hosted by crypto firm Chainalysis.
Goldsmith Romero noted that crypto firms are still grappling with issues “learned” from the collapse of FTX last November, as regulators try to move quickly to understand the technology. The CFTC has been working on enforcement cases with other agencies, “and I think you’ll probably see more of those,” she added.
Liquidity is drying up
Another concern for some investors is that liquidity for major cryptocurrencies has fallen to record lows. Data from research firm Kaiko shows that the simple exchange of bitcoin and ether for cash has fallen by 50% and 41%, respectively, since FTX filed for bankruptcy on November 11.
“It makes me sick of any rally lately, even though bitcoin is pretty close to $30K,” Christopher Newhouse, a crypto derivatives trader with GSR, told Yahoo Finance.
Newhouse said he worries that day traders are not entering the market, citing recent significant allocations to bitcoin and ether made by major corporate players Binance and MicroStrategy ( MSTR ). MicroStrategy disclosed in an SEC filing on Wednesday that it purchased just over a thousand bitcoins, increasing its total BTC holdings to approximately $3.9 billion, according to current market prices.
“It makes me wonder if new entrants are really entering the market and from a price perspective if this rally is sustainable or if organic buying has died down,” Newhouse added.
But since early February, bitcoin’s 50-day moving average has risen above its 200-day moving average, a so-called “golden cross” pattern that suggests to charting users that market sentiment has turned from bearish to bullish.
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