Crypto MarketWatch | 09th-November-2022

Bitcoin, the world’s most famous and largest crypto after surpassing the $21,500 mark on November 4th, was down 14% to hit a new year low of $17,166 and most altcoins are trailing behind. While the Binance and FTX news initially sparked a market rally, the market turned as several unconfirmed sources speculated that the FTX losses could show a deficit of $6 billion. This price drop breaks Bitcoin’s near-term correlation with the stock market, with the tech-heavy Nasdaq down just 0.32%, while the Dow Jones is up 0.48% , thanks to investor optimism surrounding the November 8 midterm elections in the United States. 

Earlier in the day Bitcoin, Binance Coin, Ethereum , FTX token and Solana had rallied strongly following the news that Binance was buying FTX, but the rebound was short-lived. At the time of writing, FTT token is falling below the $5 mark, and is down by more than 70% on the day. Solana price is also under pressure, facing an 18% correction as it trades below $25. After the Binance FTX news broke, BNB seemed destined to be the day’s winner, but the market-wide downturn didn’t spare the BNB exchange token, which is currently trading at $317, reflecting a loss of 2.6%.

Against the backdrop of volatility, BTC-Long positions of US $614 million are at a risk of liquidation, with over US $224 million liquidated on November 8th. The fear of many is that unless the FTX situation is resolved by Binance’s offer to buy the exchange, another sharp sell-off in the market could trigger a sell-off cascade and send the BTC price to new lows. There are many factors influencing the price decline in the crypto market that are being driven by the FTX capital crisis coupled with investor fears over past bankruptcies. 

Bitcoin price is reacting to the pressure FTX is putting on the market, hitting a yearly low after a period when many thought the bear market bottom had been reached. FTX balance sheet concerns caused the market to turn sharply lower after Binance’s LOI for FTX initially sent markets higher. FTX reportedly wanted to raise $6 billion in funding to close the gap on its balance sheet, potentially jeopardizing the deal. 

Terra and the eventual collapse of LUNA, since renamed LUNA Classic (LUNA), resulted in the first seven-week losing streak in Bitcoin’s history. The market is drawing parallels between FTX’s current bank run, the perceived big budget hole and what happened with Terra in early this year. 

According to the Consumer Price Index report, inflation in the United States rose 0.6% in September. The CPI report, the most followed barometer of inflationary pressures in the United States, rose to 8.2% in September 2022 vs September 2021, slightly more than the 8.1% predicted by experts. With the next CPI report on November 10, Bitcoin experienced a volatile decline in 24 hours and hit record lows by 2022.  

While the number of consumers investing in crypto has increased dramatically in 2021, prices will be heavily impacted by retailers looking to monetize these changes. And since June, Bitcoin has been flat, largely stuck in the $18,000-21,000 range after falling from its all-time high in November 2021 near $68,000. A drop below the yearly low may not immediately pique investor interest. According to market analysts, Bitcoin’s on-chain activity is down year-round. Coinbase’s trading volume fell by half to $217 billion in the second quarter. Between mid-June and mid-July, Binance reported a 50% volume drop, while Kraken and Gemini saw 75% and 80% drops, respectively. Binance.US was a notable exception, reporting a 2% drop after Bitcoin trading fees halted in June. FTX experienced a run on the exchange with a net outflow of $1.1 billion in the first week of November. 

Short-term uncertainties in cryptos do not appear to have changed the long-term prospects of institutional investors. According to a survey commissioned by the bank BNY Mellon, 91% of institutional investors are interested in investing in tokenized assets in the coming years. About 40% of them already own cryptos, and about 75% are actively investing in or considering investing in digital assets.

It is indeed concerning that FTX’s potential bankruptcy is the reason for Bitcoin’s price setting a new yearly low. In the long term, market participants still expect Bitcoin prices to rise, especially since more and more banks and financial institutions are using digital cash for billing purposes. In the meantime, investor risk appetite is likely to persist, and would-be crypto traders might consider waiting for signs that US inflation has peaked and the regulatory environment is becoming clearer. 

Disclaimer : This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptos viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice.

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