The bulls are back, or are they? This was a question more cautious observers may have begun asking themselves over the past week or two, when the cryptocurrency market rose Phoenix-like from a total cap of roughly $942 billion on Friday to $1.022 trillion on Saturday, representing a gain of 8.5% in roughly a day.
Indeed, going back to December 20 (when the market was worth about $825 billion), prices have risen by nearly 24% on average, with some altcoins (e.g. aptos, decentraland, helium, Frax share, solana) doing even better over recent timeframes.
The thing is, despite these rises, bitcoin and ethereum (for example) remain 70% and 68% below their respective all-time highs, set back in November 2021. So even if the arrival of somewhat positive US inflation data has boosted investor sentiment, it remains highly arguable that the global economy — and the cryptocurrency market — isn’t out of the woods just yet.
However, with the aforementioned inflation data also being accompanied recently by positive data from other major economies, it really does seem that we’ve entered the beginning of the end for the 2022 crypto bear market.
Of course, with macroeconomic conditions still in a precarious state, and with crypto potentially facing a number of serious regulatory actions, the past week’s gains could easily be undermined.
US Inflation Data Causes Crypto Rally
Thursday January 12 was a good day for stock and cryptocurrency markets, with the US Bureau of Labor Statistics releasing an update which found that annual inflation had declined to 6.5% in November, down from 7.1% in October.
This was the primary mover of the cryptocurrency market over the past few days, with US (and global) stock markets also rising in response to the encouraging news.
Yet it wasn’t the only piece of good economic news. A day later, the UK Office for National Statistics published figures showing that the British economy had actually grown by 0.1% in November, confounding expectations of a contraction.
This complemented very similar news from France, which also saw a 0.1% rise in GDP in the fourth quarter of 2022, as well as even stronger figures from Germany, which recorded a 1.9% growth in economic output for the whole year.
There’s also the claim that, because bond (e.g. US Treasury) yields remain at around the 4.25% mark, the Fed’s interest rates aren’t going to rise much higher this year, and will likely begin falling down as 2023 progresses.
This was an argument put forward recently by veteran fixed-income Jeffrey Gundlach, among others.
Combined with rapidly falling oil/gas prices, this all creates a suspicion of a gradually improving economic picture, which by extension should result in an improving cryptocurrency market.
This indeed seems to be the conviction of many observers of the market, with Twitter showing no shortage of people willing to come forward and declare (or at least insinuate) that 2023 is already shaping up to be much better than 2022.
Source: Twitter
And judging by how prices have reacted, you’d be forgiven for thinking that the cryptocurrency market has decided that last year’s bear market is over and a bull market is sooner or later about to begin. Not only did the market as a whole rise above $1 trillion in value for the first time since early November, but a healthy number of coins saw some very interesting above-average gains. Here’s a selection of the most notable gainers over the past week, as of writing.
Aptos (APT): the Libra/Diem offshoot has risen by 111%.
Decentraland (MANA): the metaverse altcoin has increased by 85%.
Helium (HNT): the decentralized IoT network’s coin has gained by 63%.
Solana (SOL): layer-one blockchain gained by 61%.
Terra (LUNA): the new version of LUNA rose by 58%.
Frax Share (FXS): native token for decentralized lending platform Frax Finance increased by 55%.
To an extent, many of the above-average performers are simply beginning to make up for the ground they all lost over the course of 2022, with many still well below their respective all-time highs (e.g. solana is still 91% below its record high set in November 2021).
Nonetheless, the fact that they have begun this process can arguably be regarded as a very positive sign, with a large number of people within Crypto Twitter going so far as to suggest that a new bull market has just kicked off.
Source: Twitter
Clouds on the Horizon
However, in the face of such exuberance it’s worth playing Devil’s Advocate, and there more than a few commentators who have quickly moved to argue that the past week’s gains are not the beginning of the next bull market.
For example, for entrepreneur and podcast host (and Bitcoin maximalist) Brad Mills, the current movements represent merely the beginning of a long cycle towards recovery.
Source: Twitter
At the same time, there’s arguably still plenty of contagion left to play out from November’s FTX collapse, with Silvergate Bank most recently facing a bank run in the closing months of 2022, as its customers withdrew around $8 billion from the crypto-friendly institution.
In other words, the industry could see another big blow up anytime soon, something which would send prices falling again.
At the same time, the industry faces the very real prospect of regulatory action, with the US Department of Justice still weighing up whether to charge Binance — the largest crypto-exchange in the world by volume — with money laundering violations. This comes on top of the news that Nexo’s Bulgarian offices were raided on January 12, in connection with a money laundering case.
On the same date, the SEC charged Gemini and Genesis for selling unregistered securities through their Gemini Earn product, further adding to crypto’s recent woes.
In view of these actions, it can’t be ruled out the authorities in the US (and potentially elsewhere) are preparing to confront the industry via legal and regulatory means, and with pre-existing cases between the SEC and Ripple (for example), it’s likely that they’ve been doing this already for several years.
And speaking of the Ripple case, if it loses its battle with the securities regulator, this could have a very negative effect on cryptocurrency prices.
As such, no one should really be cracking open the Champagne just yet. Yes, prices have recovered to some extent in the past few weeks, but with the global economy still mostly slowing down its decline rather than showing real strength, it would be just too premature to conclude that we’re entering a new bull market.
