Bitcoin’s trading has become ‘boring’ — but that’s not necessarily a bad thing
Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration
Dado Ruvic | Reuters
Bitcoin’s lack of volatility lately isn’t a bad thing and could actually point to signs of a “bottoming out” in prices, analysts and investors told CNBC.
Digital currencies have fallen sharply since a scorching run in 2021 which saw bitcoin climb as high as $68,990. But for the past few months, bitcoin’s price has bounced stubbornly around $20,000 in a sign that volatility in the market has settled.
Last week, the cryptocurrency’s 20-day rolling volatility fell below that of the Nasdaq and S&P 500 indexes for the first time since 2020, according to data from crypto research firm Kaiko.
Stocks and cryptocurrencies are both down sharply this year as interest rate hikes by the U.S. Federal Reserve and a strengthening dollar weighed on the sector.
Bitcoin’s correlation with stocks has increased over time as more institutional investors have invested in crypto.
But bitcoin’s price has stabilized recently. And for some investors, that easing of volatility is a good sign.
“Bitcoin has essentially been range bound between 18-25K for 4 months now, which indicates consolidation and a potential bottoming out pattern, given we are seeing the Dollar index top out as well,” Vijay Ayyar, head of international at crypto exchange Luno, told CNBC in emailed comments.”
“In previous cases such as in 2015, we’ve seen BTC bottom when DXY has topped, so we could be seeing a very similar pattern play out here.”
Antoni Trenchev, co-founder of crypto lender Nexo, said bitcoin’s price stability was “a strong sign that the digital assets market has matured and is becoming less fragmented.”
An end to crypto winter?
Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of the 2021 rally. Bitcoin, the world’s biggest digital coin, is off around 70% from its November peak.
The current so-called “crypto winter” is largely the result of aggressive tightening from the Fed, which has been hiking interest rates in an effort to tame rocketing inflation. Large crypto investors with highly leveraged bets like Three Arrows Capital were floored by the pressure on prices, further accelerating the market’s drop.
However, some investors think the ice may now be beginning to thaw.
There are signs of an “accumulation phase,” according to Ayyar, when institutional investors are more willing to place bets on bitcoin given the lull in prices.
“Bitcoin being stuck in such a range does make it boring, but this is also when retail loses interest and smart money starts to accumulate,” Ayyar said.
Matteo Dante Perruccio, president of international at digital asset management firm Wave Financial, said he’s seen a “counterintuitive increase in demand of traditional institutional investors in crypto during what is a time where generally you would see interest fall off in the traditional markets.”
Financial institutions have continued taking steps into crypto despite the fall in prices and waning interest from retail investors.
Mastercard announced a service that allows banks to offer crypto trading, having previously launched a new blockchain security tool for card issuers. Visa, meanwhile, teamed up with crypto exchange FTX to offer debit cards linked to users’ trading accounts.
Goldman Sachs suggested we may be close to the end of a “particularly bearish” period in the latest cycle of crypto movements. In a note released Thursday, analysts at the bank said there were parallels with bitcoin’s trading in Nov. 2018, when prices steadied for a while before rising steadily.
“Low volatility [in Nov. 2018] was following a large bitcoin bear market,” Goldman’s analysts wrote, adding that “crypto QT” (quantitative tightening) occurred as investors poured out of stablecoins like tether, reducing liquidity. The circulating supply of USD Coin — a stablecoin that’s pegged to the U.S. dollar — has fallen $12 billion since June, while tether’s circulating supply has dropped over $14 billion since May.
Selling pressure has slowed, too, as bitcoin miners reduced their sales of the cryptocurrency, suggesting the worst may be over for the mining space. Publicly-traded bitcoin miners sold 12,000 bitcoins in June and only around 3,000 in September, according to Goldman Sachs.
Wave Financial’s Perruccio expects the second quarter of next year to be the time when crypto winter finally comes to an end.
“We’ll have seen a lot more failures in the DeFi [decentralized finance] space, a lot of the smaller players, which is absolutely necessary for the industry to evolve,” he added.
All eyes on the Fed
James Butterfill, head of research at crypto asset management firm CoinShares, said it was difficult to draw too many conclusions at this stage. However, he added, “we err on the side of greater potential for upside rather than further price falls.”
“The largest fund outflows recently have been in short-Bitcoin positions (US$15m this month, 10% of AuM), while we have seen small but uninterrupted inflows into long Bitcoin over the last 6 weeks,” Butterfill told CNBC via email.
The main thing that would lead to greater buying of bitcoin would be a signal from the Federal Reserve that it plans to ease its aggressive tightening, Butterfill said.
The Fed is expected to hike rates by 75 basis points at its meeting next week, but officials at the central bank are reportedly considering slowing the pace of future increases.
“Clients are telling us that once the Fed pivots, or is close to it, they will begin adding positions to Bitcoin,” Butterfill said. “The recent liquidations of net shorts is in sync with what we are seeing from a fund flows perspective and implies short sellers are beginning to capitulate.”
The photo illustration shows the Bitcoin cryptocurrency on November 12, 2024 in Shanghai, China.
Vcg | Visual China Group | Getty Images
The price of bitcoin leapt back above $100,000 to start the first full trading week of the new year.
The flagship cryptocurrency was last higher by about 4% at $102,234, according to Coin Metrics. The broader crypto market, as measured by the CoinDesk 20 index, gained more than 3%. Bitcoin and ether are coming off their best weeks since Dec. 6, while Solana had its best week since Nov. 22.
“Overall, we are in a bullish environment and traders appear to be risk-on as we head into the new year,” Mario Jurina, CEO at crypto swaps platform Jumper.Exchange. “With Trump’s election set to be certified today, and January often being a bullish month — six of the past 10 years saw positive price action — it’s no wonder markets are moving upward.”
Bitcoin rises above $100,000 to start the week
The moves in crypto coincided with a rebound in tech stocks as Nvidia and shares of other chip names jumped. The tech-heavy Nasdaq was last higher by about 1.7%.
Crypto stocks Coinbase and MicroStrategy advanced nearly 6% and 5%, respectively. MicroStrategy Monday morning reported it has purchased another 1,070 bitcoins for about $101 million, bringing its total bitcoin holdings to 447,470.
Activity is coming back into the crypto market after a post-election rally that was driven by promises of a more supportive regulatory environment. The optimism sent prices rocketing for weeks before cooling at the end of the year. The price of bitcoin is expected to roughly double under the new administration this year, with some price predictions, like Fundstrat’s Tom Lee’s, being as high as $250,000.
Jakub Porzyck | Nurphoto | Getty Images
Global semiconductor stocks climbed on Monday after contract electronics giant Foxconn announced record fourth-quarter revenues, suggesting the artificial intelligence boom has far more room to run.
Hon Hai Precision Industry, which does business as Foxconn internationally, said in a Sunday statement that the company’s fourth-quarter revenue totaled 2.1 trillion New Taiwan dollars ($63.9 billion), growing 15% year-over-year.
Foxconn — which is a supplier to Apple — also set a record, posting the highest fourth-quarter revenue ever in company history, according to the statement.
The firm’s bumper revenue performance was driven by growth in its cloud and networking products — which includes AI servers like those designed by the likes of chipmaker Nvidia — and components and other products segments.
Computing products and smart consumer electronics — which numbers iPhone and other smartphones — saw “slight declines,” Foxconn said.
Shares of several semiconductor firms across Asia, Europe and the U.S. rose, as a result.
In Asia, TSMC hit a record high Monday and closed 1.9% higher in Taiwan.
The largest semiconductor manufacturer globally, TSMC produces chips for the likes of AMD and Nvidia.
Other Asian chip firms also logged share price gains — South Korea’s SK Hynix and Samsung rose nearly 10% and 4%, respectively.
In Europe, globally critical semiconductor equipment firm ASML saw its shares jump almost 6%, while fellow Dutch chip company ASMI’s stock rose almost 5%. Germany’s Infineon surged more than 6%.
Paris-listed shares of European contract chipmaker STMicroelectronics rose nearly 6%.
Stateside, Nvidia got a boost from the Foxconn numbers, climbing 2% in U.S. premarket trading.
Also boosting chip stocks on Monday was Microsoft’s announcement at the end of last week about plans to invest $80 billion in 2025 on data centers that can handle AI workloads.
Microsoft is one of several tech giants splurging on GPUs (graphics processing units) from Nvidia to train and run the most advanced AI models.
AMD, Nvidia’s closest rival, rose 3% in pre-market trading Monday, while fellow U.S. chip firms Qualcomm and Broadcom both climbed almost 2%.
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