Will the crypto rally last?
Bitcoin’s mining difficulty just jumped 10% in its biggest increase since October. [agnormark via Getty Images]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Crypto’s January rally continues. A closer look at what’s driving BTC and ETH prices higher.
Key cryptoverse quotes. Anthony Scaramucci recounts his shock about SBF, and Twitter roasts a business pitch from the founders of Three Arrows Capital.
Noteworthy numbers. The new all-time high amount of staked ETH and other numbers to know this week.
MARKET UPDATE
What’s behind January’s crypto rally, and will it last?
After a months-long crypto blizzard in the wake of FTX’s collapse, the crypto market has cautiously rallied to start 2023. Since the year began, Bitcoin is up over 28%, Ethereum has gained more than 30%, and crypto’s total market cap has reclaimed the $1 trillion mark. While it’s difficult to say if this is a temporary reprieve or if crypto winter is beginning to thaw, we’re taking a closer look at what’s driving this rally. Let’s dig in.
This week, Bitcoin rallied past $21,000 propelled by economic data and a modest boost in investor confidence.
Bitcoin has been climbing steadily since the beginning of the month when U.S. economic data indicated slowing wage growth and declining unemployment. Coupled with easing inflation (December’s CPI reading was down to 6.5% from June’s peak of 9.1%), the macro picture left investors optimistic that the Federal Reserve might slow its interest rate hikes. The S&P 500 has climbed about 5% in the same time span.
Investors are also increasing the size of their bets on the market, according to crypto data firm Kaiko. The firm said that between Jan. 8 and Jan. 17, the average trade size on one major exchange rose from $700 to $1100, indicating rising confidence from market participants. Another measure of improved sentiments? The Crypto Fear and Greed Index, which provides a vibe check on the crypto market, moved into “Neutral” territory this week after months of “Fear” readings.
BTC miners could also be contributing to the rally, as mining difficulty has jumped 10% in its biggest move since October. Usually difficulty increases as more miners plug into the Bitcoin network, potentially indicating that large sellers have been washed out and new miners are competing to verify BTC transactions.
Ethereum neared $1,600 on Wednesday, boosted in part by optimism over the blockchain’s post-Merge roadmap and the network’s next upgrade.
Since the Merge in September, Ethereum has seen a massive increase in developer activity, despite market headwinds. In Q4 of last year, the number of smart contracts deployed on the network rose more than 450% quarter-over-quarter, according to a report from the blockchain software company Alchemy. The report surveyed 985 developers, and found that 94% said they were committed to continue building in web3.
Ethereum also recently surpassed 500,000 validators, a major milestone in migrating users to proof-of-stake while also keeping the network sufficiently decentralized. Validators are users who keep the network running by staking their ETH to help verify transactions, in exchange for ETH rewards and a share of the gas fees.
Meanwhile, traders and developers are buzzing about Ethereum’s long-awaited Shanghai upgrade, due in March. A key component of the upgrade will enable users to un-stake (withdraw) the more than 16 million ETH that is currently locked away to help run and secure the network.
Why it matters… Beyond BTC and ETH, a number of altcoins have rallied, including Solana, which is up more than 125% since the start of January (thanks, BONK), as well as NEAR, Avalanche, and AAVE, which have all seen more than 50% gains in that same span. Solana’s rally is especially surprising to some, as its close ties to FTX contributed to massive losses at the end of last year. It's too early to say which rallies, if any, will sustain and which won’t, but some believe that the worst for crypto markets could be over. “Rumors of Solana’s death seem to have been greatly exaggerated,” said Messari analyst Tom Dunleavy — a sentiment that might also be said of crypto in general.
TAKES
Twitter roasts a business pitch from Three Arrows Capital’s founders, and other key quotes from this week
SBFF... “I considered him a friend” was how Anthony Scaramucci, the co-founder of investment management firm SkyBridge Capital, described his relationship with Sam Bankman-Fried during a panel event at the World Economic Forum in Davos this week, in which he discussed the “betrayal and fraud” committed by the former FTX CEO. Despite the fallout from FTX, Scaramucci said he remains bullish on crypto’s prospects.
Full Circle… “I'm happy to see a clearing out of activity not aimed at productive use,” said Jeremy Allaire, the founder of Circle (which manages the USDC stablecoin), regarding the recent upheavals in crypto. Allaire told the Wall Street Journal (at, where else, Davos) that he envisions Circle ultimately being regulated by the Federal Reserve. “We need to differentiate between the regulated and the unregulated,” he said.
Pitch imperfect… “Once you’ve finished laughing, you might consider crying,” was the Financial Times’ response to reading the pitch deck for a new crypto exchange being helmed by the founders of notorious crypto hedge fund Three Arrows Capital (3AC), which collapsed last year. The new business’s proposed name — GTX, “because G comes after F” (as in, yes, FTX) — became a source of amusement on crypto Twitter.
Soft spot… “The probability of a U.S. soft landing scenario engineered by the Fed is currently on the rise,” was the view expressed by David Duong, head of institutional research at Coinbase, in his weekly market commentary. Bearish market sentiment seems to be in retreat at the moment, noted Duong, with economic data pointing to “more relaxed views about a global recession in 2023.”
NUMBERS TO KNOW
$5.5 billion
The value of liquid assets that FTX has identified so far, according to a statement from CEO John Ray this week. “We are making important progress in our efforts to maximize recoveries,” Ray said, but both FTX and FTX US are still expected to face “substantial shortfalls.”
$3 billion
The approximate amount that the crypto lender Genesis Global Capital owes its creditors. After weeks of trying to raise capital, the firm is expected to file for bankruptcy after losing more than $175 million in the FTX collapse, and more than $2 billion on a loan after the collapse of crypto hedge fund Three Arrows Capital.
16 million
The new all-time high amount of ETH, worth about $22 billion, that’s been staked (deposited) into the Ethereum blockchain to help secure the network and verify transactions. Staked ETH will remain locked into Ethereum’s network until the Shanghai upgrade enables withdrawals later this year.
500
Number of crypto startups that Dubai claims to have attracted via the Dubai Multi Commodities Centre (DMCC), the city’s economic program that confers tax breaks and other benefits to tech startups.
DISCLAIMER
This material is the property of Coinbase, Inc., its parent and affiliates (“Coinbase”). The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Coinbase or its employees and summarizes information and articles with respect to cryptocurrencies or related topics that the author believes may be of interest.
TOKEN TRIVIA
How often is Bitcoin’s blockchain updated with new transactions?
A
Every 10 minutes
B
Once per hour
C
Once per day
D
Twice per day
Find the answer below.
Trivia Answer
A
Every 10 minutes
