The cryptocurrency landscape in 2022 has been nothing short of a financial rollercoaster ride, with twists and turns that have left investors and enthusiasts on edge. One of the latest episodes in this ongoing drama was the bankruptcy filing of Celsius Network, a prominent crypto lender. However, amidst the chaos, there is a glimmer of hope – the relative stability in the prices of major digital tokens.
In recent days, Bitcoin has managed to climb nearly 8%, while Ether experienced a surge of 20%. Both of these dominant cryptocurrencies have avoided setting new lows in what has been a bearish market for almost a month. Bitcoin has been oscillating around the closely-watched $20,000 mark, while Ether has maintained its position near $1,000.
This newfound stability in the cryptocurrency charts has fueled optimism that the worst of the contagion may be behind us, especially following the dramatic collapse of tokens on the Terra blockchain. This collapse had severe consequences, pushing hedge fund Three Arrows Capital and brokerage Voyager Digital into bankruptcy court. While a significant portion of crypto leverage remains off-chain and hidden from scrutiny, there is a visible improvement in the market, according to James Test, lead analyst at Glassnode.
“I do believe that the vast majority of the forced selling has already occurred,” Test stated in an interview. “Essentially, the market looks relatively stable.”
However, Test points out two potential sources of selling pressure that remain. Firstly, Bitcoin miners have seen the value of their hardware decline along with the token’s price, and this pressure could intensify if Celsius’s mining subsidiary decides to sell some of its 80,850 mining rigs to raise capital. Secondly, there is the risk of indiscriminate selling by investors if the broader stock market experiences another downturn.
On a positive note, the S&P 500 index has managed to stay about 5% above its recent bear market low from last month. Additionally, the 40-day correlation between Bitcoin and the Nasdaq 100 Index has weakened, suggesting that the two are becoming less correlated.
However, as James Malcolm, head of foreign exchange and crypto research at UBS, notes, fresh catalysts are needed to push cryptocurrency prices decisively in one direction or another. Nevertheless, there are signs that the crypto market is becoming more nuanced, with the performance of second-tier tokens like Matic and Aave showing that individual stories and factors matter more than before.
“What we are seeing in crypto at the moment is a situation where individual stories matter a little bit more,” Malcolm explained. “Some of which is linked to new products, some to tech upgrades, and some to business partnerships. So we seem to be slipping into a more-normal market.”
However, it’s important to remember that the cryptocurrency market is notoriously volatile, and predicting its movements is always a risky endeavor. While signs of stabilization are welcome, the crypto winter may require nourishment from macroeconomic factors, including the ongoing battle against high inflation and the Federal Reserve’s efforts to control it through interest rate hikes.
“I wouldn’t want to extrapolate too much on it,” cautioned Marc Chandler, chief market strategist at Bannockburn Global Forex, regarding the recent stabilization in crypto prices. “To me, the quieter tone you have seen in crypto this week may be a reflection of a lack of participation as people try to figure out what to do in this environment, where the Fed is clearly tightening.”