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3 reasons why it could be a rocky week for Bitcoin, Ethereum and altcoins

Following the trend of 2022, the cryptocurrency market lacks positive excitement. Bitcoin (Bitcoin) and altcoins are Stagnant until 2023 startThere are several reasons for the spike in volatility in January.

Market capitalization during the 2022 holiday period.Source: Esoteric Research

Winklevoss Letter to DCG Stirs Bankruptcy FUD

On January 2nd, Gemini co-founder Cameron Winklevoss wrote an open letter to Digital Currency Group (DCG) founder Barry Silbert. Demanding Answers on Locked $900 Million Client FundsGemini started the “Earn” program in collaboration with Barry Silbert. $900 million in customer funds locked since November 16 This is due to DCG liquidity issues.After the letter, crypto Twitter started generating FUD against DCG3 We believe there are liquidity issues similar to Arrows Capital and FTX.

The financial burden that a large Gemini Hall could place on DCG is significant as it could force it to sell significant GBTC and ETHE positions, along with other positions in trusts operated by sister company Grayscale. . according to arcane researchanother avenue for the DCG to meet its obligations is to initiate a Reg M.

Arcane Research Senior Analyst Vetle Lunde said:

“Reg M triggers a massive arbitrage strategy of selling crypto spot and buying Grayscale Trust shares.

Reliable holding of grayscale of circulating supply.Source: Esoteric Research

Fear is high, liquidity is low

DCG and Gemini’s drama takes place during a market period of declining sentiment.despite the evidence that Investors plan to join crypto In 2023, most market participants are less bullish and reluctant to engage in risky assets. The index now sits at 26 on the same 100-point scale as it was in December.

Fear and Greed Index. Source:

Such high levels of fear are even more pronounced during times of low liquidity.Market activity continues to decline, reaching volumes not seen before Binance was introduced Zero transaction fees for BTC pairs The low spot trading volume suggests a continuation of weak market participation in the first half of the year.

BTC volume with or without Binance.Source: Esoteric Research

If DCG adopts the Reg M path and spot market volumes remain low, crypto price corrections could be sharp in the short term.

The upcoming economic calendar hints at potential volatility

As you can see below, the macro markets are off to a busy start to 2023 with notable events.

Married. January 4th:

  • ISM Manufacturing PMI
  • US JOLTs
  • FOMC Minutes

Thursday. January 5th:

Friday 6th January:

  • Non-Farm Salaries and Unemployment Data
  • ISM Non-Manufacturing PMI

Sun. January 8th:

  • Gemini Settlement Proposal to DCG Expires

Thursday. January 12th:

  • US CPI Inflation Report

Friday January 13th:

  • US Banks Begin Reporting Fourth Quarter 2022 Earnings

If numbers fall short of expectations or anything out of the ordinary occurs, the stock market may react by selling.

The decline in spot trading volume is coupled with BTC volatility reaching its lowest level in 2.5 years. According to Lunde, the period of low volatility will not last very long.

Runde said.

“These periods of low volatility are rarely long lasting, and periods of volatility compression have previously tended to be followed by sharp moves, even in stagnant markets.”

BTC 7 and 30 days volatility.Source: Esoteric Research

Some analysts believe the US Consumer Price Index (CPI) on Jan. 12 indicate a spike in inflationIn this case, the Federal Reserve may continue to raise interest rates. Crypto Market Capitalization Decreased In the past.

Combined with current market sentiment, possible bankruptcy of DCG, and reduced liquidity in the market, the potential for further interest rate hikes could cause crypto markets to react to the downside again.