Latest Cryptocurrency, Blockchain, and Defi News
Stock indices, as well as the price of cryptocurrencies, were highlighted in dark red during the week in the market. Correlations with risk assets have remained solid in recent days, as have our expectations for cryptocurrencies. From its Jan. 20 high to its Jan. 24 low, Bitcoin fell more than 24 percent in just five days. What about Ethereum, which fell 34 percent in the same time period, with altcoins losing even more than Bitcoin?
Last week, we advised you to proceed with caution. The stance clearly favored fund investors, who experienced only a partial decline. Our long-standing crypto positions that are important to the fund have been virtually non-existent over the past 7 days.
Is this uncharted territory for us - long distance. In fact, since 2016, there have been 14 pullbacks of over 40% from previous 90-day highs, which is where Bitcoin is currently. They become great opportunities to enter the market each time. The longest drop before returning to the highs occurred in January 2018, when it took nearly three years to break the $20,000 barrier. However, the last eight came in just 5.6 to 2.9 months.
Bitcoin's correlation with the Nasdaq has been unmistakable since the beginning of the year, disappointing anyone who expected Bitcoin to act as a hedge in an inflationary environment. However, if some speculators sell their cryptocurrencies in times of uncertainty, we can assume that most of them are long-term investors. This correlation should eventually run out of steam. Analyst Will Clement has been watching this trend closely. Yesterday, the correlation temporarily turned negative for the first time. If it's too early to celebrate victory, Bitcoin may have hit the floor before the stock market.
One thing is certain: despite the current volatility, a supply shock seems inevitable sooner or later. In fact, the illiquid supply of Bitcoin, or the amount of tokens that have not yet been exchanged, is 14.5 million. All based on a supply of just under 19 million units. If these holders increase their wallet by 27%, no more tokens will be available. While the concept itself makes no sense, it shows how an increase in Bitcoin holders over the long term can lead to a supply that can be so scarce that demand alone can cause prices to rise.
Bitcoin has been buying aggressively in recent days, approaching $30 000, as investors began absorbing funds from short sellers. CryptoQuant data suggests that Bitcoin exchanges again began unloading their BTC reserves in late December, according to blockchain data. This is another indicator of an impending supply shock.
In the short term, we will have to see if the $38 000 resistance can turn into support for a retest of the $40 000 limit. However, one positive day will not change the trend, especially when this rally coincides with a comprehensive recovery in US tech stocks. While we recovered some positions during our comeback, caution remains the best policy.