Why bitcoin rose 40% in January despite crypto industry carnage. Can the rally continue?

Find me on Twitter at @FrancesYue_ to share your thoughts on crypto, this newsletter or your personal stories with digital assets.

Why the rally?

It’s not just crypto – most markets tend to do well in January as fund managers rush to roll out money at the start of a year, according to Ivan Ivanchenko, managing partner at Phinom Digital. . In fact, most risky assets have risen so far this year, with the tech-heavy Nasdaq Composite posting an 8.8% gain, according to FactSet data.

Meanwhile, bitcoin was shorted heavily in November and December following the collapse of FTX. As the price of crypto unexpectedly rose in January, some short sellers were forced to close their positions and buy bitcoin, pushing the price of crypto even higher.

Bitcoin’s rise also comes as investor confidence has picked up, noted Luuk Strijers, chief trading officer of crypto derivatives exchange Deribit.

After FTX’s implosion in November, the number of open contracts for bitcoin futures and options on Deribit hit an all-time high, indicating a high level of activity, Strijers noted. “It’s because people were anticipating the worst, which forced them to hedge their holdings to protect more downside moves,” Strijers told Distributed Ledger in an interview.

Fear and panic in the crypto market may ease slightly in January, with several signals in the derivatives market suggesting a return of institutional interest. The spot price of bitcoin is below futures prices, showing that traders believe the price of bitcoin will rise, according to data from multiple exchanges.

Additionally, there are more call options being traded in the market than put options, signaling a rise in bullish sentiment, Strijers noted. Call options allow traders to buy an asset at a predetermined price, while put options allow traders to sell an asset at a predetermined price.

And after?

Despite the recent rally, Phinom’s Ivanchenko expects bitcoin to decline further, which could fall below its previous low of $15,480, Ivanchenko said. “I prefer to think that the market currently presents more risks than opportunities,” Ivanchenko said. “We don’t know how weak some links are.”

The macroeconomic environment remains challenging, with inflation still high and a possible recession underway, at least in the United States. It’s also unclear how Genesis’ bankruptcy might affect other companies, including its parent company Digital Currency Group and its sister company Grayscale Investments, which owns the world’s largest bitcoin fund, GBTC, Ivanchenko noted.

Read: Jeremy Grantham says the “easiest stage” of the stock market bubble burst is over. Here is the continuation.

Meanwhile, after several major crypto companies collapsed last year, “regulators can easily push the market to new lows,” Ivanchenko said.

Deribit’s Strijers has a different view. He expects the rally to continue with the market in “recovery mode”.

The impact of the FTX and Genesis implosions on most major crypto companies is already known and understood, Strijers noted. “I think people realize that, and the Genesis problem, while serious and unstable, is manageable,” Strijers said.

Tesla’s Crypto Holdings

Tesla neither bought nor sold bitcoin in the fourth quarter of 2022, although the largest cryptocurrency fell to a two-year low of $15,480 in November after FTX filed for bankruptcy. Tesla invested $1.5 billion in bitcoin in early 2021 as the crypto traded above $30,000.

Still, the electric car maker posted a $34 million impairment loss in the fourth quarter, recording the value of its digital assets at $184 million on December 31, from $218 million on September 30.

Crypto at a Glance

Bitcoin prices have risen 10% over the past week and were trading at around $23,027 on Thursday, according to data from CoinDesk. Ether ETHUSD,
-2.21%
gained 5% over the same period to reach around $1,601, according to data from CoinDesk.

The biggest winners	Price	%return within 7 days
Aptos	$18.32	139.5
Ghost	$0.49	63
Axie Infinity	$11.64	44.6
BTSE	$3.01	42.6
eCash	$0.00004	42.5
		Source: CoinGecko as of January 26

The biggest declines	Price	%return in 7 days
To burst	$0.04	-8.6
Tokenize Xchange	$6.67	-2.2
Pax Dollar	$1	-0.4
Attached	$1	-0.3
Real USD	$1	-0.2
		Source: CoinGecko as of January 26

Crypto companies, funds

Coinbase Global Inc. COIN Shares,
+0.49%
rose 8.6% for the week to around $53.67. MicroStrategy Inc. MSTR,
-0.21%
is up 9.6% so far on the week, to $242.77.

Crypto mining company Riot Blockchain Inc. RIOT,
-1.61%
jumped 7.1% to $6.19 on Thursday. Shares of rival Marathon Digital Holdings Inc. MARA,

rose 17.9% to $8.65 over the past week. Ebang International Holdings Inc.EBON,
-4.31%
lost 10.9% over the past week and was trading at $8.09.

Overstock.com Inc. shares OSTK,
+1.80%
were trading up 11.3% to $22.48 on the week.

Shares of Block Inc. SQ,
+0.52%,
formerly known as Square, gained 13.2% to $80.32 for the week so far. Tesla Inc. shares TSLA,
+10.97%
rose 24% to $157.99.

PayPal Holdings Inc. PYPL,
+2.16%
advanced 3.6% on the week, to trade around $79.56. Nvidia Corp. NVDA,
+2.48%
added 17% to $197.42 last week.

Advanced Micro Devices Inc. shares AMD,
+0.33%
got 10.7% to $74.92 for the week.

Among crypto funds, ProShares Bitcoin Strategy BITO,
+1.03%
rose 9.3% on the week to $14.64 on Thursday, while its counterpart Short Bitcoin Strategy ETF BITI,
-0.93%
fell 8.8% to $27.53. Valkyrie Bitcoin BTF ETF Strategy,
+0.66%
rose 9% over the past week to $9.20, while VanEck Bitcoin Strategy ETF XBTF,
+1.11%
climbed 5% to $23.39.

Grayscale Bitcoin Trust GBTC,
+1.07%
rose 5.5% over the past five days to hit $12.13 on Thursday.

must read