The crypto market has just added $50 billion in a lightening-fast recovery from what some market watchers were fearing might be the start of the next leg down in a revisiting of the year’s lows.
But what is behind this major pump in prices across the crypto complex?
A number of factors can be seen to have come together.
First there’s the deleveraging events that appear to have run their course and there may be no more dominoes to fall. After Terra, Voyager, Celsius and Three Arrows Capital, no more shoes have fallen, as yet.
Top crypto prices were flashing oversold, whales are accumulating
Secondly sellers may have exhausted themselves, with major coins such as bitcoin in oversold positions.
We can add to that a third and related factor, which is whales are looking to take up new positions in the belief that we are at or close to the bottom for the crypto market.
1k bitcoin whales have been distributing to exchanges in the wake of the Luna collapse (more on Luna below) – the chart below from Glassnode shows how whale distribution aligns with local tops.
Fourthly, we need to take into account the situation with other asset classes and the macro environment, and this background music may be the trigger for today’s impressive upturn.
Although there was no statement from Fed chairman Jay Powell that he was going to slow down on raising interest rates, there were indications from elsewhere that the gloom was being overdone in equity markets.
In China, for example, producer price inflation data came in better than expected and hopes of further stimulus were heightened.
In Europe gas prices fell on hopes of a palliative emerging from European policymakers today.
That led to a fall in bond prices, although oil was up and so too was gold. But generally good vibes in the stock market have fed through into other risk assets – and crypto is the ultimate risk asset.
Dollar weakness brought out the risk asset bulls
But it was the fall in the dollar that could be the the most significant catalyzer of today’s bullish events. As the Bloomberg chart reproduced below shows, the negative correlation of crypto v the dollar is huge:
A fifth factor should be brought into the mix, and that is the views and actions of financial institutions. News emerged overnight that Franklin Templeton will providing its institutional clients with crypto accounts.
Earlier in the week Singapore’s largest bank, DBS, said it would be providing digital asset services and trading to its richest 300,000 clients. Whompoa Group followed suit a few days later.
And all this follows on from the massive news that the world’s largest asset manager, BlackRock, was moving into crypto on behalf of its clients.
Why the Ethereum Merge is a game changer for the crypto complex
A sixth and final positive to bring into the mix is the Ethereum Merge.
Ethereum can reasonably be considered the premier commercial network of the crypto asset class. Indeed, it is about to start out on the road to an endpoint that will make it truly scalable and cost-effective for businesses to transact upon and run industrial scale applications.
We could add to that a reinforcement of our fifth reason, institutional interest, because the Ethereum Merge could lead to a take-off in staking interest from investment bank and others
All of the above may have informed the reasoning of the likes of billionaire Sam Bankman-Fried, the founder of the wildly successful FTX crypto exchange.
He told CNBC today that the worst is very probably over. “The real pain, I think, came three to four months ago. We don’t necessarily foresee more pain from here. Things have very much stabilized in the space,” says Bankman-Fried.
If you missed it, here’s some of crypto prices that are buzzing
All the major coins are higher. Bitcoin is up 9% at just over $21k in a powerful surge off the week’s lows of $18,660.
Ethereum which was expected to continue its good form on the back of the Merge upgrade, came off the boil, but it too has rediscovered its mojo. The leading smart contract platform is trading 5% higher at $1,724.
Aside from the top coins, there have been surprising advances in other quarters too.
LUNA pumps – what’s going on and will it last?
Crypto traders have been cheering the uptrend of Terra Classic which has improved 64% this week alone and nearly 400% over the past 30 days.
That run has reversed slightly today as LUNC is down 12% to $0.000445. Surprisingly it is Terra 2.0 (LUNA), the refashioned version of the collapsed Terra Luna – which some deride as Do Kwon’s scam – that is now carrying the torch.
Terra raced ahead by more than 200%, as we reported earlier today, in a move that has amazed seasoned market observers and novices alike.
As always with such violent price moves, there are charges of manipulation in the air.
Twitter crypto influencer Fat Man thinks a dump is going, so buyers entering now might be caught out:
Also there is strongly bullish action in the BTC perpetual futures market, which Kaiko analyst Riyad Carey has astutely brought our attention to:
Crypto price action suggests reasons to be cheerful
All things considered, there are plenty of reasons to be cheerful about the crypto sector at the moment – now that’s something that might not have been said at the beginning of the week.
Nevertheless, volatile times are of course de rigueur for crypto, so investors may wish to accumulate on consistent and regularize basis rather than dropping in a sizeable lump sum.
In other words, the market might be in the process of bottoming but it may not be at the bottom just yet.
But if you are looking to hold for months rather than days, fishing around or below current price levels could prove profitable. Dollar cost averaging is your friend.