Why stocks may have more room to fall than crypto this year, according to one analyst

By Frances Yue

Hello! Welcome back to Distributed Ledger. This is Frances Yue, a crypto reporter for MarketWatch.

Bitcoin has been trading in a range of between $23,500 and $25,000 for the past week as US regulators increase their oversight of the industry, while Hong Kong is establishing a task force to achieve its target of become a crypto hub.

I caught up with Martin Leinweber, digital asset product strategist at MarketVector Indexes, who said he expects more declines in the US stock market than crypto this year amid macroeconomic uncertainty.

As usual, find me on Twitter at @FrancesYue_ to share your thoughts on cryptocurrency, this newsletter, or your personal stories with digital assets.

crypto vs. Actions

“I think the crypto market has digested a lot more negative headlines than the stock market,” said Leinweber of MarketVector.

As the Federal Reserve aggressively raised interest rates, bitcoin lost more than 65% in 2022 and ether declined nearly 70%, according to CoinDesk data. Some smaller chips lost 90% of their value or more. In contrast, the Dow Jones Industrial Average fell about 9% in 2022, the S&P 500 closed the year down 19% and the tech-heavy Nasdaq Composite fell about 33%, according to FactSet data.

So far this year, bitcoin is up more than 45%, while the Dow Jones is mostly flat and the S&P 500 is hovering around 4.6%. The Nasdaq has gained about 10%.

"Looking at what's happening now in the crypto space, like all the transactions, price action, sector stickiness, and even relative strength versus stocks, I think they show a bullish sign," Leinweber told Distributed. Ledger on a call.

Hong Kong's Crypto Boost?

Earlier this week, Hong Kong outlined a plan to allow individual investors to trade cryptocurrencies with larger market capitalizations. The city will also establish a working group to provide recommendations on the development of the digital asset industry, according to various media reports.

Tokens with strong ties to China have skyrocketed over the past week, posting double or even triple digit gains. Cryptocurrency Conflux is up 204% over the past seven days. Filecoin advanced 43% and Neo gained more than 40% during the same period.

Meanwhile, during last week's crypto rally, most of the trading activity occurred during Asian and European trading hours, noted James Lavish, managing partner and portfolio manager at Bitcoin Opportunity Fund. "It was clearly not US activity," according to Lavish.

The Shanghai Improvement

The Ethereum Shanghai upgrade, which would allow blockchain validators to withdraw their staked ether, is scheduled for March. Staking allows cryptocurrency holders to earn rewards while using their existing holdings to secure the underlying blockchain.

Some are concerned that the Shanghai update will lead to short-term volatility in Ether, as investors could withdraw their staked coins. However, Leinweber said that he believes the upgrade is bullish for cryptocurrencies in the long run, as increased liquidity may attract more people to stake their ether.

To be sure, regulatory uncertainties surrounding holdings remain in the US. Earlier this month, crypto exchange Kraken ended its holding program in the country, after the company was accused by the Securities and Exchange Commission of do not register the program as a value.

bullish options market signals

The crypto derivatives markets have also sent some bullish signals, according to Greg Magadini, head of derivatives at Amberdata.

Six-month bitcoin options have been trading with more volatility up than down, meaning traders are expecting more upside surprises in the coming months, Magadini noted. The trend is very different from the dynamics of bitcoin options in 2022, Magadini said on a call.

Crypto in an instant

Bitcoin lost 1.1% last week and was trading at around $23,919 on Thursday, according to data from CoinDesk. Ether fell 2% in the same period to around $1,660.

Biggest Gainers  Price   %7-day return 
Conflux          $0.28   204% 
Stacks           $0.85   149% 
Amp              $0.009  73.9% 
WEMIX            $2.5    72.5% 
Filecoin         $7.82   42.5% 
                         Source: CoinGecko as of Feb. 23 
Biggest Decliners  Price   %7-day return 
Mina Protocol      $0.99   -17.4% 
ImmutableX         $1.04   -16% 
Aptos              $13.48  -15.5% 
Fantom             $0.50   -13.4% 
Bitget Token       $0.39   -12.6% 
                           Source: CoinGecko as of Feb. 23 

Crypto companies, funds

Shares of Coinbase Global Inc. (COIN) lost 5.4% for the week to around $62.22. MicroStrategy Inc. (MSTR) was down 5.5% so far this week at $268.35.

Crypto mining firm Riot Blockchain Inc. (RIOT) rose 0.6% to $6.40 as of Thursday. Shares of rival Marathon Digital Holdings Inc. (MARA) rose 1% to $7.30 over the past week. Ebang International Holdings Inc. (EBON) plunged 10.6% over the past week and was trading at $7.59.

Shares of Overstock.com Inc. (OSTK) fell 6.7% to $20.34 for the week.

Shares of Block Inc. (SQ), formerly known as Square, have fallen 6.5% to $73.50 in the week to date. Tesla Inc. (TSLA) shares fell 0.2% to $201.43.

Shares of PayPal Holdings Inc. (PYPL) fell 2.3% over the week to trade around $74.95. Shares of Nvidia Corp. (NVDA) rose 7.6% to $236.74 over the past week.

Shares of Advanced Micro Devices Inc. (AMD) were down 0.4% at $79.77 for the week.

Among crypto funds, the ProShares Bitcoin Strategy (BITO) was down 1.8% for the week at $14.96 on Thursday, while its counterpart's Short Bitcoin Strategy ETF (BITI) was up 1.6% at $26.57. The Valkyrie Bitcoin Strategy ETF (BTF) was down 1.6% over the past week at $9.51, while the VanEck Bitcoin Strategy ETF (XBTF) was down 2% at $24.21.

Grayscale Bitcoin Trust (GBTC) was down 1.7% over the past five days at $11.82 on Thursday.

-Frances Yue

required reading

(END) Dow Jones Newswires

02-23-23 1539ET

Copyright (c) 2023 Dow Jones & Company, Inc.