On January 20, 2023, the price of Bitcoin (BTC-USD) broke through the bearish trend that had been observed for fourteen months and thus brought a touch of optimism to the crypto market. Bitcoin has been consolidating in the $21,500-$25,300 range since the end of January, indicating the first significant signs of market stabilization as the Fed continues to raise interest rates and increase geopolitical tensions around the world due to a Chinese balloon entering US space and increased hostilities between Russia and Ukraine.
N_Aisenstadt – TradingView
This article will present the factors still exerting downward pressure on the price of coins and not allow talking about a complete change from a bearish trend to a bullish one. On the other hand, more and more signs on the market indicate the beginning of a recovery in investment interest in cryptocurrencies after the devastating news about hacker attacks on crypto exchanges and even the bankruptcy of some of them in the second half of 2022.
Increasing fees in the Bitcoin network
One of the first factors that are beginning to point to the transition of the crypto industry from a bearish cycle to a bullish cycle is the increase in the average transaction fee in the Bitcoin network. The key reason for the rise in commissions is the increase in the number of transactions in the Bitcoin network, and as a result, competition for inclusion in blocks is intensifying. Consequently, crypto miners are starting to select transactions with higher fees to maximize their revenue for their services.
Source: Author’s elaboration, based on Glassnode
After reaching a multi-year high in November 2021, the price of BTC was in a bearish trend until January 16, 2023. At the same time, fee revenue remained extremely low for only four months after the price of Bitcoin reached $65,000 per coin. After many market participants became disillusioned with cryptocurrencies and apathy reigned, relatively low prices attracted new traders and investors who took advantage of the situation.
Source: Author’s elaboration, based on Glassnode
At the moment, we can see the fee momentum breaking above one, indicating an increase in block space demand. As a result, this not only leads to a recovery in miners’ profits but can also confirm the emergence of hope among crypto community members with the subsequent end of the crypto winter.
The balance of crypto exchanges continues to decline
In recent quarters, the cryptocurrency industry has been flooded with news of various exchange hacks. On October 6, 2022, there were reports on many information resources that hackers successfully hacked the blockchain associated with Binance, stealing $566 million in BNB, Ethereum (ETH-USD), Fantom (FTM-USD), Polygon (MATIC-USD), and other coins.
And in mid-January 2023, FTX stated (FTT-USD) in a report to creditors that $415 million of digital assets were stolen due to hacking attacks. And as a result, many investors began to be more conservative in holding Bitcoins, Litecoins (LTC-USD), and other coins, moving them to more secure offline crypto wallets. Moreover, the trust continues to decline in exchanges that were actively used to conduct transactions with coins until Q3 2022, and at the moment, many of their clients prefer to keep their assets under their control.
On November 22, 2022, the total number of Bitcoins held by Coinbase (COIN) was around 531,242, and the next day there was a significant withdrawal of funds in excess of 44,000 BTC as a result of the spread of adverse reports about the bankruptcy of FTX. On a larger scale, there is a trend toward reducing the holding of coins by investors on the balance sheet of a crypto exchange. So, since the beginning of 2022, Coinbase’s clients have withdrawn a little less than 195,000 Bitcoins, thereby creating additional pressure on the financial position of one of the largest exchanges in the world.
Source: Author’s elaboration, based on Glassnode
Moreover, one of the additional reasons for the reduction in the balance of Coinbase may be the desire of investors to take profits from their investments due to the increase in the price of Bitcoin by just over 40% over the past month and a half. Overall, in Q4 2022, the company posted an operating loss of $474.5 million, starkly contrasting to the last three months of 2021, during which Coinbase posted its highest operating income ever. The continued downward trend in operating income from quarter to quarter is a red flag and can be a significant cause for concern for investors and the entire crypto community.
Source: Author’s elaboration, based on Seeking Alpha
In addition, Binance’s partner in issuing Binance USD, Paxos, is under the gun. The U.S. Securities and Exchange Commission has begun a discussion with Paxos about the need to change the legal status of this stablecoin, and the regulator is also considering steps against the company. In the event that Binance USD (BUSD-USD) is recognized as a security, this will open Pandora’s box, as a result of which many other stablecoins can receive this status, which will lead to more stringent regulation and loss of interest by traders and investors in the crypto industry. You can already see how the balance of Bitcoin at Binance (BNB-USD) has decreased by 10.6% from the peak in the 4th quarter of 2022.
Source: Author’s elaboration, based on Glassnode
Fed rate hike
At the Federal Open Market Committee meeting, which was held from January 31 to February 1, the majority of its participants agreed that it is necessary to raise the interest rate by 0.25%, which is in line with the expectations of investors and traders. However, the negative moment was the information that several participants of the meeting were in favor of raising the interest rate by 0.5%, and thus this could lead to higher borrowing costs and, as a result, lead to a slowdown in economic growth. One of the possible reasons for the desire of some members of the FOMC to tighten monetary policy and thereby raise the key rate by 50 basis points may be the fact that the pace of slowing inflation is declining and, as a result, it is necessary to act more aggressively to achieve the inflation target at 2%. So, the annual inflation rate in the United States was 6.41% as of January 31, 2023, which is only 0.04% less than the previous month.
Source: YCharts
If the Fed raises the interest rate by 0.5%, then this will strengthen the US dollar and increase investment interest in US Treasuries (US10Y) (US2Y) compared to Bitcoin, which is trying to get out of the bearish cycle.
Conclusion
After a fourteen-month bear market that brought frustration and apathy to various digital assets on the part of crypto community members, the first significant signs of its recovery finally appeared on the horizon.
During the bearish period, there has been a redistribution of Bitcoin ownership from investors who are less disciplined and less confident in the asset to those who clearly understand the value of cryptocurrencies in a rapidly evolving digital world. In recent weeks, there has been a significant increase in the number of transactions, which positively affected miners’ profits. In Q1 2023, two key players in the crypto industry, Riot Platforms (RIOT) and Hut 8 Mining (HUT) announced an increase in Bitcoin mining. Given the increased price of cryptocurrencies and the rise in the number of mining equipment, it can be said with high confidence that the largest Bitcoin mining companies have successfully passed the test of the strength of their financial position from Mr. Market.
According to a report by Fidelity Digital Assets, a subsidiary of Fidelity Investments, European and American institutional investors have reported an improvement in the perception of cryptocurrencies and continue to increase investment in various digital assets. In my estimation, in 2023, there will be a tightening of regulation by various government agencies, which, on the one hand, will reduce the appetite of speculative traders in the short term, but on the other hand, will attract the attention of long-term and more conservative investors. So, for example, according to the optimistic forecast of ARK Invest, the price of Bitcoin can reach $1.48 million by 2030, but with a more conservative estimate, Katie Wood’s company (ARKK) can reach the price of the most popular cryptocurrency in the amount of $258,500, which is significantly higher than the current values. In addition, many institutional market participants continue to reduce interest in commodity mastodons such as Exxon Mobil (XOM), Occidental Petroleum (OXY), and Chevron Corporation (CVX) and begin to increase their appetite for riskier assets.
In conclusion, I would like to note that according to my model, in the next two weeks, I expect a correction in the price of Bitcoin due to the strengthening of the US dollar against other currencies during the Fed’s interest rate hike and also the tightening of tensions between the administration of US President Joe Biden and the Chinese government. After that, the accumulation phase may come, which I will use to buy shares in Bitcoin mining companies and ETFs involved in managing digital assets.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
