Needless to say, the global economy has weakened over the past year and will continue to weaken. So far, the U.S. government has reached its debt ceiling (the total amount the U.S. Treasury Department can fund its ongoing federal operations), leading to fears of more financial damage and a possible recession.
Likewise, across the Atlantic, Britain is struggling. It turns out that the number of bankrupt companies registered in 2022 will reach 22,109, a 57% year-on-year increase and the highest level since 2009. Not only that, but a recent report by the International Monetary Fund shows that the UK will be the only G7 country facing a recession this year.
However, amidst all this disruption, the cryptocurrency market seems to have picked up a storm over the past month. In January, the industry’s total market capitalization rose nearly 32%, from $828 billion to about $1.1 trillion. Specifically on January 30, Bitcoin rallied to $24,000 after seemingly stalling around $16,500 in the second half of November and December.
In fact, the asset’s share of total market capitalization recently jumped to 44.82%, the highest level since last June. As a quick fix, this number typically only grows dramatically when investors start limiting their exposure to altcoins and putting money back into BTC.
Is Bitcoin’s Next Stop $25,000?
After successfully defending its $22,500 price target since Jan. 20, Bitcoin is currently seeing a 30-day return of around 40%. The surge was reflected in a similar rebound in stocks, which recently recovered after China eased COVID-19 restrictions following a three-year-long grip on the pandemic.
30-day Bitcoin price chart | Source: CoinGecko
Additionally, U.S. institutional investors now account for 85% of all recent Bitcoin accumulations, according to data provided by financial services firm Matrixport, suggesting that major players are still reluctant to give up and exit the cryptocurrency market. Hence, to gain a better understanding of where the industry is headed in the future. Timothy T. Shan, CEO of Dexalot, an Avalanche-based decentralized exchange, put it this way:
“Given all the negative news in the industry that hasn’t had its full impact, I think Bitcoin’s recent bull run was a positive surprise. This means I don’t believe the current bull run is sustainable and users should expect more volatility.”
As such, the new year could be a bullish time for the crypto market if and only if the global economy can recover, said Frederic Fernandez, co-founder of DeFi trading app DEXTools. This is because large-scale trend reversals can increase demand for alternative investments and increase market liquidity.
“If economic uncertainty increases due to the possible introduction of restrictive regulations, the market may continue to fall. However, if Bitcoin reaches $25,000, it could mean increased trust and acceptance of cryptocurrencies, leading to increased investment and broadly used.”
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According to Luuk Strijers, chief commercial officer of options exchange Deribit, the cryptocurrency market is slowly recovering. In support of this claim, he shared that the market is once again in “contango,” a situation where the futures price of an asset is higher than the spot price. A contango situation is often observed when the price of a particular asset continues to rise over time.
BTC’s 25 delta bias has moved from above 30% to below zero, which is a bullish indicator, he said. The indicators outlined above allow analysts to forecast the price movement of an asset and estimate future movements (volatility) based on certain predictors. Strijers emphasized:
“The decline in the 1-month Skew indicator shows that losses on short-term calls are higher than losses on puts, which is a bullish sign.”
He also highlighted that open interest (OI) related to bitcoin and ethereum options has rebounded, which is a positive sign, especially considering that a lot of momentum has been lost after the big expiry late last year.
Bitcoin options open interest data as of February 2022 | Source: Deribit
Not only that, Strijers pointed out that the put option ratio (PCR) in the options market partially bottomed out at the end of last month, suggesting that investors may start to take interest in digital products in the financial sector again. PCR is an indicator commonly used to determine sentiment in options markets.
market sentiment
In the last week of January alone, the cumulative inflow of digital asset investment products on the market was 117 million US dollars, the largest inflow in 180 days. Investors primarily put their money into BTC-related services, accounting for $116 million of the aforementioned figure.
Additionally, the number of digital investment products continues to grow, hitting the $1.3 billion mark on January 30, with a 17% year-to-date value increase. However, according to Coishares researchers, the Bitcoin Short product recorded an inflow of $4.4 million, which does not bode well for investor sentiment.
The multi-asset investment vehicle experienced divestments in its third month of operation, with outflows amounting to $6.4 million. According to Coinshares, this shows that more and more investors are turning to the tried-and-tested crypto asset.
Finally, the Crypto Fear and Greed Index, a tool that helps investors gauge movement and sentiment in the cryptocurrency market, is currently at 60. This number represents “greed”, that is, people want to buy cryptocurrencies because they think there may be bullish traction coming in the short term.
what happens?
From a macro perspective, Shan sees the Fed approaching its end-of-period interest rate target — the neutral rate once prices stabilize and full employment is achieved — currently just above 5%. In his view, the Fed will maintain this figure throughout the year, while noting that any upcoming recession will be very mild and will not have much impact on the crypto market.
He further noted that strict regulations may be enacted soon which, if properly implemented, will greatly benefit the market. Shan said:
“Just because of good regulation, the industry can grow exponentially as they will open the door for mass adoption over the next 10+ years.”
In the end, the difficult sell-off of the past year and numerous frauds, excessive leverage, and poor controls and governance are the factors that have helped the crypto economy reset more perfectly. . This is because they help the industry learn lessons, enable participants to act responsibly, and help the industry grow sustainably.
As such, it will be interesting to see how the digital currency market landscape continues to evolve as we head toward a future fueled by growing economic uncertainty, especially as Bitcoin and other major cryptocurrencies are currently recovering in the case of.
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mango
As reported by Cointelegraph
