Traders become wary of ‘unloved’ bitcoin rally

Cryptocurrency trading activity has slowed even as bitcoin enjoys its longest winning streak in more than two years, a sign that many investors are increasingly reluctant to buy into the rally after a series of collapses and scandals in 2022.

The price of bitcoin, the most popular token, has risen 70 percent this year, helping the market regain some momentum after the failure of companies like Exchange FTX.

Investors have shrugged off lawsuits by US regulators against companies such as Binance, the industry’s biggest exchange, and collapsed stablecoin operator Terraform Labs, as authorities have sought to clamp down on activity they see as illegal.

However, the price of bitcoin has since been stuck in a rut for more than a month, trading in a narrow range around $28,000. That pause has been accompanied by thinned volumes, with small trades increasingly able to move market prices.

“While bitcoin’s recent performance is stellar on the face of it, many in crypto are calling this year an unloved rally,” said Charles Storry, head of growth at Phuture, a crypto index provider.

“Sentiment hasn’t changed, and regulatory scrutiny is sidelining a lot of new money that might otherwise enter the space. Price movements don’t mean much if the industry doesn’t make meaningful strides to regain confidence and attract new investors, he added.

A bruising year 2022 has left investors nursing losses or funds trapped in limbo as failed cryptocurrency lenders and exchanges go through bankruptcy proceedings in the courts.

Crypto enthusiasts also claimed that confidence has been renewed by the weakness of the global banking sector, and the huge outflow of deposits from banks such as the US’s Silicon Valley Bank and Silvergate, and Credit Suisse in Switzerland.

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“The rally we experienced after the banking crisis earlier this year appeared to be directly related to a flight to safety and self-storage of funds away from the dollar,” said Edmond Goh, head of trading at crypto broker B2C2.

But that sentiment has been undermined by a number of signals coming from crypto markets. Analysts point out that the rise in cryptocurrency prices was already built on a thinly traded market.

The extent to which a market can absorb large orders without major changes in the price of bitcoin has declined since the start of the year, according to data provider CCData.

In January, it would have required the purchase of more than 1,400 bitcoins, roughly equivalent to $23 million at the time, to move the price of the token by more than 1 percent of its current market value, CCData said.

By the end of last month, it would have taken just 462 bitcoins, worth about $13 million, to move market prices by 1 percent, the lowest point of market depth for the bitcoin-tether trading pair since May 2022, when the industry plunged into crisis.

“Prices are recovering, but liquidity has yet to return. No exchange or market maker has yet to fill the space like FTX and [its sister trading arm] Alameda once encompassed,” said Michael Safai, managing partner at crypto trading firm Dexterity Capital.

Investors who bought into bitcoin in recent months are now holding onto their investments.

Glassnode, a crypto data provider, said “there has been remarkably little spending” by investors buying bitcoin as it hit a two-year low following FTX’s failure last November.

“The FOMO that drove many first-time institutional and retail investors last year is obviously not happening now, despite the crypto markets rising significantly this year,” said a Dubai-based crypto fund manager, citing a fear. of missing out.

Also, there have been outflows of $72 million over the past two weeks in digital asset investments, ending a six-week streak of consecutive inflows, according to CoinShares. The crypto investment group attributed the trend to the likelihood of further rate hikes from the US Federal Reserve.

Traders are also concerned that the heavy clouds that have overshadowed the industry over the past 12 months have not completely disappeared. Binance, the world’s largest crypto exchange, is likely to be drawn into a protracted lawsuit with the Securities and Exchange Commission.

Another cloud is the fate of Genesis, one of the largest lenders in the crypto market, which filed for bankruptcy in January owing more than $3 billion after the implosion of FTX.

Owner Digital Currency Group, one of the world’s largest holders of bitcoins via its wealth management arm, wants to raise money to repay Genesis creditors. DCG said last week some Genesis creditors had walked away from a previously agreed restructuring deal.

The market appears to be “in a holding pattern pending the resolution of DCG’s debt payments”, said Ram Ahluwalia, managing director of investment adviser Lumida Wealth Management.

The uncertainty, together with the crisis in the American regional banking industry, has emphasized to many that the market is still working through its many issues.

“There’s still not a lot of organic momentum behind cryptocurrencies,” Safai said. “The headline events that drive cryptocurrency prices past tipping points . . . are few and far between.”

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