Jan 10 (Reuters) – Bitcoin looks stable in 2023. But it’s only been a week.
Cryptocurrencies have snuck into the new year, licking their wounds after the carnage of 2022. Overall global crypto market capitalization has risen 5% to $871 billion since Jan. down more than 57% compared to the same period last year.
Bitcoin itself has gained 4.3% since the start of 2023, despite being stuck in a tight range between $16,500 and $17,300. The world’s largest cryptocurrency is oddly subdued, with its 7-day volatility falling to levels not seen since October 2018, according to data from Refinitiv Eikon.
“It will be a year for the patient, as we don’t expect prices to approach any old all-time highs in 2023,” said Vetle Lunde, principal analyst at Arcane Research.
Cryptocurrency spot trading volumes also remain weak after falling about 48% in December from the previous month to $544 billion, their lowest level since December 2019, according to data from CryptoCompare.
While lower trading volumes are common at the start of the year, crypto market sluggishness has been exacerbated by a “general exodus” of active retail investors, according to Arcane Research.
For some market players, however, moderate sounds pretty good after the bitcoin bloodbath of 2022.
“I feel encouraged by the bottom we’ve seen forming under bitcoin, it shows there’s a lot of demand around the $16,000 and $17,000 levels,” said Callie Cox, investment analyst at the eToro investment platform.
What shall we do now?
THE TAURUS STORY
Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, pointed to the tightening Bollinger Bands — a technical indicator that tracks price and volatility — on bitcoin charts.
The bands are at their tightest since July 2020, and such a tightening has historically preceded aggressive moves higher for bitcoin, he added.
This possible scenario was picked up by Lunde of Arcane Research.
“These periods of low volatility rarely last long, and periods of volatility compression previously tended to be followed by sharp moves, even in stagnant markets,” he said.
Additionally, bitcoin perpetual futures funding rates have been positive since Dec. 19, according to data from Coinglass, meaning traders are betting on rising prices and will pay to keep their long positions open.
THE STORY OF THE BEAR
On the other hand, cryptocurrencies remain at the mercy of macroeconomic headwinds as concerns swirl around a slowing global economy.
“The weaker economic outlook means people have less disposable income to invest in what they consider risky assets like crypto,” GlobalBlock’s Sotiriou said.
Economic uncertainty could cause investors to run for the safety of the US dollar, which tends to be inversely correlated to bitcoin, said Dalvir Mandara, quantitative researcher at MacroHive.
“The macro backdrop is still bearish for crypto,” Mandara added in a note on Thursday.
Meanwhile, crypto firms are dealing with the fallout from the collapse of Sam Bankman-Fried’s FTX exchange.
Some big companies have started laying off employees in a bid to cut costs, while Silvergate Bank (SI.N) reported an $8 billion drop in crypto-related deposits, sending its shares plummeting by almost 43%.
Reporting by Lisa Pauline Mattackal in Bengaluru; Assembly Pravin Char
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