Cryptocurrencies are rising in 2023 despite the banking crisis, rising interest rates, and a host of new legal and regulatory headaches for the fledgling industry.
Bitcoin, the largest and most well-known digital currency, is up 69% in the three months ending March 31, while ether, the second largest, is up 51%. bitcoin (BTC) is currently hovering around $28,000 while ether (ETH) on Wednesday topped $1,900 per coin, its highest level since September of last year. Both are relatively flat over the past 24 hours.
Even Dogecoin (DOGE), a cryptocurrency that started as a joke, shot up 30% higher on Monday after Elon Musk Swapped Twitter's Bird Icon With Dogecoin's Shiba Inu Logo. Doge lost some of these gains on Thursday when the Twitter logo was changed.
SkyBridge Capital Founder and Managing Partner Anthony Scaramucci told Yahoo Finance on Thursday, "I guess we're in the bear market right now" for cryptocurrencies. โIf something happens to Binance,โ he said, referring to a cryptocurrency exchange experiencing new legal pressure from regulators, โI think it will be a short-term hit.โ
Skybridge had some challenges last year as some customers asked to withdraw their money. He also sold a 30% stake to cryptocurrency exchange FTX before the exchange crashed. Total assets under management at Skybridge fell to $1.8 billion at the end of 2022, down 50% from the prior year and down 80% from a peak of $9.2 billion in 2015.
But Scaramucci remains confident in his firm's cryptocurrency investments. "Any time you've held bitcoin on a four-year rolling range, so you pick the day, you hold it for four years, you've outperformed every other asset class," Scaramucci said.
The rapid rise of digital currencies is one of the big surprises of the year for markets after a 2022 crash cost investors billions as higher interest rates and inflation slashed value and price. attractiveness of risky assets.
Several cryptocurrency players filed for bankruptcy, including FTX in November. Former FTX CEO Sam Bankman-Fried now faces criminal charges for stealing billions of FTX client funds and misleading investors.
"It's a rebound from the really poor performance that we saw in 2022," VettaFi's head of research, Todd Rosenbluth, told Yahoo Finance on Tuesday.
Giving the market an extra boost this year, ironically, was a banking crisis in March that wiped out three lenders, including two that specifically catered to cryptocurrency clients.
Some investors chose to look to cryptocurrencies as a safe haven from perceived banking instability. Others anticipated that the Fed might have to cut interest rates in response to the crisis, leading to more flows into alternative risk assets.
Since March 10, the day Silicon Valley Bank was seized by regulators in the second largest bank failure in US history., bitcoin is up more than 33% and ether is up more than 26%. The total value of all crypto assets increased more than 22% during that period, as of Friday at 8:30 am ET.
Regulatory pressure ramps
This year's cryptocurrency comeback is unfolding even as Washington regulators intensify their efforts to rein in this market.
The Securities and Exchange Commission has issued 11 enforcement actions since early January against crypto companies and individuals, while serving formal letters to paxosDeFi exchange sushiand world coinbase (CURRENCY) advising that the agency plans to initiate an enforcement action. Coinbase is the largest crypto exchange in the US.
Coinbase shares have rallied 73% year to date, but are still two-thirds below their value a year ago.
Another regulator, the Commodities and Futures Trading Commission, has also sued crypto exchange Binance and its CEO Changpeng Zhao for allegedly selling digital asset-backed derivatives to US clients despite not being registered to do so.
โThis industry is not in a good position of trust right now with the public, with investors, with customers,โ CFTC Commissioner Christy Goldsmith Romero said Wednesday at the Links NYC conference hosted by crypto firm Chainalysis. .
Goldsmith Romero noted that crypto companies are still grappling with โlearnedโ issues from the FTX crash last November, while regulators try to move quickly to understand the technology. The CFTC has worked on compliance cases with other agencies, "and I think you'll probably see more of those," she added.
liquidity dries up
Another concern for some investors is that the liquidity of major cryptocurrencies has fallen to record lows. Data from research firm Kaiko shows that the ease of trading between bitcoin and ether cash has fallen a total of 50% and 41% respectively since FTX filed for bankruptcy on November 11.
โI get tired of any recent rally, even though Bitcoin is pretty close to $30,000,โ Christopher Newhouse, a crypto derivatives trader at GSR, told Yahoo Finance.
Newhouse said he is concerned that everyday traders are not entering the market, citing recent sizable allocations to bitcoin and ether made by major corporate players Binance and MicroStrategy (MSTR). MicroStrategy disclosed Wednesday in an SEC presentation which bought just over a thousand bitcoins, bringing his total BTC stash to roughly $3.9 billion, based on current market prices.
"It makes me wonder if new entrants are really entering the market, and from a pricing perspective, if this rally is sustainable or if organic buying has subsided," Newhouse added.
But since early February, bitcoin's 50-day average has broken above the 200-day moving average, a pattern called a "golden cross" that suggests to chart users that market sentiment has shifted from bearish to bullish.
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