Market Wrap: Bitcoin and Equities Stabilize as Sentiment Improves

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Bitcoin surged around $43,000 on Tuesday and is up about 3% over the past 24 hours. Several altcoins such as MATC and FTM are up about 14% over the same period, indicating an increase in risk appetite among investors.

It appears that the bullish trend is starting to return to the cryptocurrency and stock markets, at least in the short term. Technical indicators are indicating that BTC is at its most oversold level since December, which may encourage some traders to buy on the dip, although the upside may be limited to $45,000.

The sell-off has had a negative impact on crypto-mining stocks over the past two months. Shares of US-listed miners Marathon Digital Holdings (MARA), Riot Blockchain (RIOT) and Bit Digital (BTBT) each have fallen more than 50% since November 10.

However, some miners seem unfazed by the drop in prices. For example, Bitcoin miner Bitfarms bought 1,000 bitcoins worth $43.2 million during the first week of January.

But for some traders, losses are starting to pile up. Blockchain data shows that more and more traders are selling BTC at a loss or below their cost basis. “In May 2021 (during a sharp sell-off) we saw a similar type of behavior when the market continued to sell at a loss for an extended period of time,” CryptoQuant wrote in a blog post on Tuesday.

Latest Prices

  • Bitcoin (BTC): $41.785, +2.33%
  • Ether (ETH): $3,239, +5.02%
  • S&P 500: $4,713, +0.92%
  • Gold: $1,822, +1.31%
  • Daily close of 10-year Treasury yield: 1.74%

For now, it appears that most buyers are still on the sidelines, especially ahead of the US Consumer Price Index (CPI) report, which is due out on Wednesday.

The market expects the CPI to rise 7.1% in the year to December and 0.4% during the month. If the number released is greater than expected, we can expect more bitcoin selling pressure,” Marcus Sotiero, an analyst at UK digital asset broker GlobalBlock, wrote in an email to CoinDesk.

“Given the sell-off we’ve seen in recent weeks, Bitcoin’s downside is limited in the short term, even with higher-than-expected inflation data on Wednesday,” Soterio wrote.

High correlation with stocks

The chart below shows Bitcoin’s 90-day correlation with the S&P 500 approaching its highest level in nearly a year. Some analysts are concerned that the macroeconomic risks facing stocks may affect cryptocurrency prices this year.

“Cryptocurrencies are on a par with stock growth – they are sensitive to interest rate dynamics,” Alex Kuptsikevich, an analyst at FxPro, wrote in an email to CoinDesk. Higher interest rates mean that the company’s earnings over the next few years are less valuable today, which could lead to lower valuations and stock prices.

“At the same time, we must not forget that cryptocurrencies are more mobile, that is, they sometimes lose two or three times more than the Nasdaq index. If this is the case, then cryptocurrencies are far from the bottom, because the process of normalizing interest rates in financial markets has not completed yet.

Bitcoin and S&P 500 Correlation (CoinDesk)

Other analysts expect bitcoin’s correlation with the S&P 500 to decline this year.

“Bitcoin’s correlation with stocks will not hold this year because stocks are only a few percentage points from record highs, while bitcoin is down about 40%,” Oanda analyst Edward Moya wrote in an email to CoinDesk.

“The focus for the next few months will be on the Fed’s aggressive rate-raising cycle and how quickly the balance sheet will shrink, which could be even more negative for stocks than bitcoin,” Moya wrote.

Moya predicts that an economic recovery in countries outside the US later this year could lead to a weaker dollar. In turn, a lower dollar will reduce inflationary pressures and provide support for assets that are considered risky such as cryptocurrencies and stocks.

In the long term, he said, economic factors will continue to affect the prices of both cryptocurrencies and stocks, especially as more traditional investors gain exposure to both assets.

“What is different between now and the much bigger dip of 2018 is that we are seeing more and more permanent capital coming into the space over the past year or so,” Paul Viraditakit, partner at crypto hedge fund Pantera Capital, said during an interview with First Mover” by CoinDesk suggests that this could mean more engagement with traditional markets.

Tour around Altcoin

  • Outperformance near and universe: Tokens of Near (NEAR) and Cosmos (ATOM) were among the only major cryptocurrency gainers over the past 24 hours. NEAR posted a gain of 17% in the past 24 hours and ATOM added up to 8% to above $39.33 before a short dip. Cryptocurrency developers say such newer blockchains are creating avenues for developing new protocols, which contributes to their appeal among investors, according to CoinDesk’s Shaurya Malwa. Read more here.
  • DeFi tokens drop as traders move away from pilot projects: Olympus (OHM) DeFi tokens have fallen by as much as 13.5% in the past 24 hours. Analysts said a popular rally involving OHM borrowing from Fuse to cash in on the returns on OHM tokens saw liquidations overnight and contributed to a sharp price drop, according to Malwa. Read more here.
  • Axie Infinity’s massive sidechain represents a multi-chain future: Ronin, a Tier 2 product from developer Axie Infinity Sky Mavis dedicated solely to the game, handled 560% more total transactions than the Ethereum blockchain during Ronin’s peak November period, according to a report by blockchain analytics firm Nansen. Developers who focus on specific functions will push most blockchains to specialize, said Martin Lee, a Nansen data journalist, according to Andrew Thurman. Read more here.

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Most of the digital assets on CoinDesk 20 finished the day higher.

Biggest winners:

Biggest loser:

Sector rankings are provided via Digital Asset Classification Standard (DACS)Developed by CoinDesk Indices to provide a reliable, comprehensive and standardized rating system for digital assets. the Queen desk 20 It is a ranking of the largest digital assets by volume on trusted exchanges.

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