There’s still a long way to go to reclaim all-time highs and crypto naysayers will continue criticizing, but there’s no denying cryptocurrencies are soaring early in 2023.
Bitcoin and ether, the two largest digital currencies as measured by market capitalization, entered Thursday up 50% and more than 40%, respectively, year-to-date. Even with that impressive start, bitcoin needs to more than double to regain its all-time high. That’s asking a lot, particularly over the near-term, but there are reasons to believe bitcoin and its peers can generate more upside.
Among the positive catalysts for bitcoin are institutional buying and increasing appetite for risk assets in the crypto space.
“A major move in Bitcoin is upon us. There has been a major wave of institutional money coming into the exchanges over the past week, $1.6 billion according to data from Lookonchain. A lot of that money is leaving stablecoins, including Circle-issued USD coin. The fate of stablecoins will be decided in the near future, but many are not expecting regulators to crush the entire space,” noted Edward Moya, Oanda senior market analyst.
He added that the longer bitcoin stays sturdy without faltering, the less patient sellers become. While sellers’ departures likely wouldn’t be permanent, it would likely clear the way for bitcoin to continue its 2023 ascent. Translation: Short covering is likely playing a part in bitcoin’s 2023 rebound.
“Short covering may also be contributing to jump in cryptocurrencies. Short covering occurs when a short seller buys back shares in order to close out an open short position — returning borrowed shares — in an attempt to limit losses. This also drives up further the price of the underlying security,” reported Hakyung Kim for CNBC.
Another point in favor of the broader crypto space is the fact that market participants aren’t selling simply because of increasing regulatory pressure. In fact, Wednesday’s price action in bitcoin, crypto-correlated stocks, and exchange traded funds indicated investors were buying in the face of intensifying regulatory efforts.
“The regulatory actions were initially being called ‘Operation Choke point’, leading to fears that crypto was actively being de-ramped from the banking system, with an attack on stablecoins and custody rules,” wrote Bernstein analyst Gautam Chhugani in a report to clients Thursday.
Chugani added that many investors are under-allocated to or have no exposure at all to crypto funds and as those fund flows increase, prices could follow suit.
“The crypto liquid funds we speak to have had fairly conservative exposure levels. While new capital may have been slow to enter the space, there remains adequate capital un-deployed within the ecosystem of crypto funds, which have largely remained risk-off so far,” noted the analyst.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.