News Updates January 28, 2023
1. This Bitcoin ETF Jumped 100% This Month Outperforming All US ETFs
Amid a strong pullback in the Bitcoin price, crypto ETFs have been performing well outperforming other US equity funds.
It’s been a great start to the year 2023 for all Bitcoin investors as the world’s largest cryptocurrency appreciated by more than 33% this month. As of press time, BTC is trading above $23,000 backed by strong bullish momentum. Now, ETFs associated to Bitcoin are also showing strong performance.
Interestingly, the Valkyrie Bitcoin Miners ETF with a ticker of WGMI – We’re Gonna Make It – has surged by a staggering 100% this month making it the best-performing fund for this month. The WGMI ETF is leading by a strong 25 percentage points from its immediate next competitor from the US equity funds.
The Valkyrie Bitcoin Miners ETF includes mining companies such as Riot Blockchain, Digihost Technologies, Marathon digital Holdings, Bitfarms, and Hive Blockchain Technologies among its top holdings. After a brutal 2022, all of these companies are breathing fresh oxygen in January and have shot to the moon. Speaking to Bloomberg, Mohit Bajaj, director of ETFs at WallachBeth Capital said:
“Bitcoin is up 40% year to date, so that is boosting the demand for the underlying stocks”. Plus, many of those stocks are thinly-traded, “so when there is excess buying, it will cause some higher price deviations.”
As said, with a strong revival of Bitcoin and the overall crypto space, the ETF tracking companies linked to cryptocurrencies have witnessed a promising start. On the other hand, this rally has also provided much-needed relief to Bitcoin miners which have been facing severe operational challenges last year.
2. Fannie Redux? Home Loan Banks Are Bailing Out Crypto Banks
An interesting dynamic is taking shape, despite the fact that the crypto market has largely priced in last year’s bankruptcies.
The crypto market seems to have priced in last year’s string of crypto company bankruptcies. But the crypto firms that survived will still be paying off bank loans to cover their positions for some time.
Crypto prices continue to edge upward while the market bears and bulls regroup.
Even the recent bankruptcy of Genesis hasn’t dampened crypto investors’ enthusiasm.
Regulators Worry
Meanwhile, at least two banks with a high-profile roster of cryptocurrency companies for customers are staying afloat with money from home loan banks.
That may be a bullish signal for cryptocurrency in the big-picture view. It could signal traditional finance appetite for crypto exposure despite the risks. It is also, however, a source of consternation for economic planners and regulators.
They are concerned that the growing connections between the crypto sector and traditional finance pose “contagion” or “spillover” risks that could endanger the entire economy.
It was this kind of over-sophistication of financial markets that led to the financial crisis in 2008. Ironically, that happened as a result of the housing market crash that started in 2007.
A web of connections and fixed-income derivatives (just a kind of smart contract without the blockchain) left the entire economy vulnerable when home prices cratered.
US Home Loan System Bails Out Two Crypto Banks
According to a recent report in the Wall Street Journal, crypto banks have taken billions in loans out from home loan banks to cover their shortfalls.
The United States Federal Home Loan Banks System (FLHB) has loaned out billions of dollars to two major crypto banks. The organization was originally founded amid the Great Depression to support home lending.
Signature Bank is one of them. Silvergate is another. Both are tradfi companies that made the pivot to do business with crypto but still qualify for home loans.
Even though they technically qualify, their losses over the past year came from crypto, not housing. The loans they’ve taken out from FLHB may be correct on paper, but they almost certainly support its high-risk, high-reward activities in crypto.
This is the sort of creative banking that causes the spillover risks that worry financial regulators. They are concerned this kind of multiple-role financial business models create technicalities that destabilize the financial system.
3. All Major Stablecoins USDT, USDC, DAI Surging Again, Data Says.
Top-tier centralized and decentralized stablecoins pegged to the U.S. Dollar are back to surging after a record-breaking 10-month decline. Typically, such action is a reliable bullish signal, data says. After 10 painful months, stablecoins started gaining traction, IntoTheBlock says As per a statement made by IntoTheBlock on its official Twitter account yesterday, on Jan. 27, 2023, largest centralized stablecoins U.S. Dollar Tether (USDT) and USD Coin (USDC) started increasing their supplies together with the major decentralized stable asset Dai (DAI).
According to statistics shared by IntoTheBlock, the aggregated capitalization of the three assets started growing shortly after the FTX/Alameda collapse. The drama of SBF-backed entities ended the prolonged "correction" of the stablecoin segment that started with the Terra (LUNA) crash in May 2022. As displayed by CoinGecko, some smaller stablecoins demonstrated even more impressive supply upsurges. For instance, True USD's (TUSD) circulation is up 25% since mid-December and is ready to enter the 10-digit waters for the first time.
The seventh largest stablecoin Pax Dollar (USDP) has had its circulation increased by 5%, while Liquidity USD (LUSD) is one step away from the top 10 after a whopping 24% spike. Fuel for new rally? Meanwhile, some other major stablecoins, including Binance USD (BUSD) and Gemini USD (GUSD), are still reducing the supply of their assets available on-chain. Typically, upsurges in stablecoin capitalization are a bullish signal for crypto markets' capitalization: traders need more stablecoins to push Bitcoin's (BTC) and altcoins' prices higher.
4. Crypto Trader Identifies a Change in the Altcoin Market Trend.
A crypto trader and influencer with the identity Pentoshi has identified a new pattern in the price behavior of altcoins. Pentoshi observed that the altcoin market moves quickly, without having significant pullbacks, unlike a few months ago. Something different from the past few months.
In a tweet, he told his followers about some trading opportunities he missed by a narrow margin. He had concluded analyses, identified entries, and prepared his trades, only for the market to miss those entries and move higher.
According to Pentoshi, those same trades would have been filled a few months ago, even after 24 hours and sometimes 48 hours. With the missed opportunities, he wished he had entered at market prices rather than using preset orders.
Many traders use preset stop and limit orders in the cryptocurrency market. Preset orders are beneficial and an advantage in many ways for active traders. They help traders to avoid slippage and take advantage of trading opportunities even when they are not physically active.
Pentoshi’s experience has revealed one of the disadvantages of preset orders. They take away a trader’s impulse and ability to react quickly and spontaneously in the event of quick changes in the market.
Pentoshi described his recent experience as “absolutely painful.” According to him, he had a higher conviction for the particular trades that didn’t fill. He wished that he had acted earlier and entered at market price, even if that would have cost him more spread.
Market spreads can increase above original levels during high volatility. That is another reason many crypto traders adopt preset orders, especially during a bull run. Orders may be difficult to fill when prices move quickly, or they get filled farther than the trader’s preferred entry with increased spread.
The crypto market has been on a rally this year, and there are predictions that this could continue for much longer. However, traders are keeping the market close, knowing that things can change significantly over a short period.
5. Crypto market resurgence produces over 44,000 new Bitcoin millionaires.
After last year’s bear market that took a toll on most cryptocurrencies, Bitcoin (BTC) is making headlines again as it reaches new levels, minting a new batch of millionaire owners. This new group of wealthy Bitcoin holders has capitalized on the market rally in 2023 to join the elite club of crypto millionaires.
According to data compiled by Finbold, the number of Bitcoin millionaire addresses as of January 28 stood at 72,483, representing an increase of 44,399, or 61%, from the January 5 figure of 28,084 BTC millionaire holders. During this period, Bitcoin has surged by about 37%.
As per the data provided by BitInfoCharts.com, 67,551 different addresses have a Bitcoin balance valued at over $1 million. Additionally, 4,932 addresses hold Bitcoin worth over $10 million as of January 28.
Furthermore, by leveraging the web archive tool Wayback Machine, on January 5, 2023, about 24,279 addresses owned Bitcoin, equivalent to at least $1 million, while 3,805 addresses accounted for Bitcoin valued at over $10 million.
Bitcoin’s rally has also impacted holders making money in general. In particular, 60% of the holders are making money at the current price while 35% are in loss. The remaining 5% have broken even.
It is worth noting that the new crop of millionaires is far from addresses that incurred losses during last year’s crypto winter. As per Finbold’s report, across 2022, about 71,085 millionaire address holders were wiped out.
Drivers of new Bitcoin millionaires
The surge in price and the creation of new Bitcoin millionaires can be attributed to the crypto market putting behind the bearish conditions of 2022 that were characterized by high inflation and fallout from incidents such as the FTX collapse.
Bitcoin has managed to sustain the gains triggered by the falling United States inflation rate. In this case, the Federal Reserve is likely to ease its aggressive monetary policy since the war on inflation is likely to be won, and in return, risky assets such as Bitcoin are standing out to benefit.
Notably, sustaining the number of Bitcoin millionaires remains a challenge considering the general market is still facing uncertainty. Bitcoin is still in volatile conditions that have partly spread from last year.
In this line, several technical indicators are offering mixed signals regarding the asset’s future. For instance, as reported by Finbold, Bitcoin is facing the first ever one-week dreaded death cross formation. The pattern has long been associated with bearishness.
