Author | Qin Xiaofeng

Editor | Hao Fangzhou

Produced by | Odaily Planet Daily (https://www.odaily.news/)

This morning, Bitcoin broke through $18,000, ETH stood above $1,400, and other currencies also rose to varying degrees. The total market value of cryptocurrencies returned to $900 billion.

Even the Grayscale Bitcoin Trust (GBTC), which had previously been in a state of severe discount, rose 12% on Monday, marking the fund's largest single-day increase since February 2022. Currently, the net value discount rate of GBTC has dropped from 45.1% at the beginning of the year to the current 38.8%, and the net value discount rate of ETHE (Grayscale Ethereum Trust Fund) has dropped from 59.3% at the beginning of the year to 51%.

All signs seem to suggest that the crypto market is experiencing a recovery. Slogans such as "Bulls are back soon" are heard on social media, and crypto investors, under optimistic sentiment, seem to be full of faith again.

However, the market is analyzed relatively calmly and restrainedly: Although the pace of global interest rate hikes will slow down in 2023, liquidity is still poor, and it is difficult for the financial market to rebound significantly; in addition, with the bankruptcy of many large crypto companies such as Three Arrows Capital, Genisis, and FTX, the crypto market is in the stage of digesting the impact, and it is difficult to have enough funds to promote a sharp rise. In addition, on-chain data shows that some whales have begun to increase their holdings of BTC; from a cyclical perspective, 2023 is more like 2015, "which also means that we may hit the bottom around August 2023."

1. The total market value of cryptocurrencies hits the trillion dollar mark

At the beginning of 2023, the crypto market ushered in a "small spring".

Bitcoin has continued to rise from $16,534 at the beginning of the year and broke through $18,000 today. It has increased by 9.4% this year and is currently trading at $18,100. ETH has increased by 17.1% and is currently trading at $1,402.

Looking at other cryptocurrencies, among the top 50 cryptocurrencies by market capitalization, except for stablecoins, they have all recorded good gains in the past 24 hours; in the past 7 days, the gains have generally been within 10% to 20%. From the perspective of sectors, the "liquidity pledge solution" has attracted much attention from the market, with an overall increase of 26.3% in the past 7 days. The "three horses" of this sector, Lido DAO (LDO), Rocket Pool (RPL) and Frax Share (FXS), have accumulated increases of 91.5%, 43.3% and 37.1% respectively this year.

As a result, the market value of the entire crypto market rose to $924.7 billion, returning to $900 billion after a month, and is heading for the trillion-dollar mark; since the beginning of the year, the total market value of cryptocurrencies has risen by $96.2 billion, a cumulative increase of 11.6%. Crypto users' trading enthusiasm has increased significantly, and today's panic and greed index is 30, still at the "panic" level, but the panic level has decreased compared to a week ago.

In addition, mainstream institutions have shown an increased interest in Grayscale products. For example, Morgan Stanley European Opportunities Fund revealed that it had purchased $3.6 million worth of Grayscale Bitcoin Trust Fund GBTC this month. The actions of these institutions directly pushed GBTC up 12% on Monday (January 9), the fund's largest single-day increase since February 2022, outperforming other risky assets such as Bitcoin. Data shows that GBTC's net asset value discount rate has dropped from 49% last month to the current 38.8%; the Grayscale Ethereum Trust Fund (ETHE) net asset value discount rate has dropped from 59.3% at the beginning of the year to 51%.

Currently, Grayscale Fund has a total holding of US$16.191 billion. The discount rates of mainstream currency trusts are as follows: ETC (-69.11%), LTC (-56.21%), BCH (-52.63%), ZEC (-44.24%), MANA (-11.76%), XLM (-21.66%), ZEN (-38.96%), LPT (-44.56%), BAT (-50.26%). The only two products with a positive premium are LINK (6.29%) and FIL (74.64%).

Crypto-related listed companies were also affected by the rising market, with their share prices generally rising by more than 10% in the past week. Among them, the first mining machine stock Canaan Technology (NASDAQ: CAN) rose 29.8% to $2.52; the US compliant encryption platform Coinbase (NASDAQ: COIN) rose 31.6% to $43.79; the largest Bitcoin holding listed company MicroStrategy (NASDAQ: MSTR) rose 24.4% to $194.76; the mining company Argo Blockchain (LON: ARB) has seen its share price rise by more than 122% this year, and is still up 56.2%.

2. Analysts’ predictions for the market outlook

Most of the time, to know whether the future market will rise, you need to analyze the degree to which the root causes of the past bear market have faded. The poor performance of the crypto market in the past year can be traced back to several reasons.

First, the crypto market is directly affected by macroeconomic conditions, including geopolitical instability, market chaos caused by the Russia-Ukraine war, the COVID-19 pandemic, and continued interest rate hikes by global central banks. In particular, the Federal Reserve raised interest rates seven times last year, which greatly reduced global financial liquidity. The crypto market is also difficult to be immune.

Felix Xu, founder of ARPA and Bella Protocol, analyzed that the Federal Reserve's terminal interest rate is 5%, and it has now reached 4.25% to 4.5%. Although the pace of interest rate hikes will slow down in 2023, liquidity is still poor. "Liquidity in 2023 is slightly better than in 2022, creating some support for prices, but a sharp rebound seems unlikely."

Felix Xu added that from a cyclical perspective, the current crypto market is more like 2015 than 2019. "Because the Fed is unlikely to cut interest rates like it did in 2019, this also means that we may hit the bottom around August 2023." (Note: Refer to the data of "Annual Maximum Drawdown": 80% in 2015, 82% in 2019, and 76% so far in 2023.)

Jamie Coutts, crypto market analyst at Bloomberg, believes: "2023 is likely to remain a problematic year for risk assets (recession), but our global liquidity measures are beginning to improve, which creates tailwinds for BTC and is a tentative start to a new cycle."

Like Gokhshtein, venture capitalist Tim Draper is also optimistic about the market in 2023, believing that BTC will soar to $250,000, and the halving of Bitcoin in 2024 will also drive its price up. "Bitcoin provides a way for people to bypass middlemen. Compared with the US dollar, retailers can save about 2% in costs on each Bitcoin transaction. Once retailers realize that this 2% can double their profits, Bitcoin will be everywhere."

In addition to macro factors, the crypto market itself also has many obstacles that affect the rise of the market. In the past 2022, there were frequent bankruptcies of crypto market companies or projects. A series of black swan events such as Terra, Three Arrows Capital, Celsius Network, Genisis, and FTX directly caused Bitcoin to fall below $20,000 for the first time since 2020 and lasted for several months. At present, the impact of the bankruptcy of many companies is still being continuously eliminated by the market. As a highly volatile risk asset driven by liquidity and sentiment, Bitcoin is likely to rise sharply only when market sentiment recovers.

In addition, the crypto market is also very concerned about whether DCG will explode. According to the current information summary of all parties, DCG's short-term debt is US$525 million (due in May 2023) and its long-term debt is US$1.1 billion (due in 2032); DCG officials have not announced the value of its current assets, but only claimed that its shares are worth US$10 billion. It is this lack of transparency that makes investors not optimistic about the market outlook for 2023, so they choose to wait and see.

Eric Robertsen, global head of research at Standard Chartered Bank, believes that Bitcoin will continue to fall in 2023 and could plunge 70% to $5,000. He added that Bitcoin could crash if the cryptocurrency industry sees more bankruptcies after the FTX debacle and if the Federal Reserve decides to keep raising interest rates.

3. On-chain data: BTC whales are increasing their holdings

Some on-chain data about Bitcoin may give us more confidence in the future.

First, realized losses show that Bitcoin may have bottomed out. Every time Bitcoin prices bottom out, there is a long period of forced selling and an increase in realized losses, that is, holders surrender and sell tokens. According to Glassnode data, there were two historic capitulation events in June and November last year, especially the FTX event, which caused a single-day loss of US$4.43 billion, setting a new historical record.

In addition, Glassnode observed that the ratio of realized profits to realized losses hit a record low in November last year. Similar ratio lows were seen at the bottom of the bear market cycles in 2011, 2015 and 2018; followed by a macro trend shift, and a bull market began the following year. The report pointed out that the market correction may last for several months before the trend reverses.

Secondly, in terms of holding time, more than 75% of the addresses have held the coins for more than 6 months without moving the tokens, which may indicate that the holders regard them as long-term investments.

Finally, Bitcoin whales began to hoard coins. According to Santiment data, whale addresses holding 1,000 to 10,000 BTC were not active in December; but since January 5, these addresses have begun to increase their holdings, with cumulative BTC holdings increasing by about 20,000. Santiment data shows that these addresses currently hold a total of 4.57 million BTC, accounting for 23.7% of the circulating supply. In addition, whale addresses with more than 10,000 BTC - most of these addresses belong to exchanges and "wealth classes", such as Michael Saylor, who have a large amount of BTC exposure, have increased their holdings by more than 20% in the past two months, which may indicate that the richest people are increasing their positions.