Its the calm before the storm in crypto markets

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key takeaways

  • Crypto volatility has decreased and peak on-chain activity has subsided in a period of relative calm
  • However, many of the developments surrounding Genesis, Gemini and DCG are still ongoing
  • Volatility may also increase after US inflation data comes out this week
  • The period is reminiscent of the low drama environment prior to FTX in October

after a turbulent rollercoaster shocking demise FTX, a period of remarkable calm has descended on the cryptocurrency markets.

With 2022 being a complete and utter bloodbath, it seems almost doubtful that the digital market space has had even a couple of weeks of low drama.

But metrics show that the past few weeks have been the quietest in years. Seeing it fear of infection This happened after the collapse of FTX, which is a good thing.

Fear still runs high in crypto circles

Having said that, there’s a lot to be concerned about right now. As Coinbase CEO Brian Armstrong said yesterday when he announced Coinbase Extra 20% Off In its workforce, “more boots are likely to drop” and there is “still a lot of market fear”.

Crypto lender Genesis laid off 30% of its staff last week and is reportedly considering bankruptcy. $900 million in customer assets of crypto exchange Gemini, founded by the Winklevoss twins, hang in the balance with Genesis as the sole lending partner for its earnings product.

The twins have demanded Barry Silbert, CEO of Digital Currency Group (DCG), which owns Genesis, accusing them of defrauding Gemini Earn customers.

The DCG fired back, calling it “another desperate and unconstitutional publicity stunt by Cameron Winklevoss to deflect blame”. It also confirmed that it is “preserving all legal remedies available in response to these malicious, false and defamatory attacks).

DCG is also the parent company of the Grayscale Bitcoin Trust, which has seen its net asset value slide 50% after the FTX collapse as investors questioned whether the reserves were safe (I wrote about GBTC). yesterday,

Markets are firm for now

For now, while all these episodes are on, the markets are standing firm. The action has been relatively muted, and there has actually been a solid return to normal levels for much of the on-chain activity that had become infrequent in the recent period.

The snapshot below shows the net transfer volume in and out of the exchanges. Since the start of the year, action has been sluggish, peaking in November and December as FTX first collapsed and then raised questions. health of binance,

The notion that activity has returned to normal is reinforced given the volatility of bitcoin. The world’s largest cryptocurrency has been trading sideways for a while now, and the 30-day Pearson measure of volatility shows how there was a marked decline to pre-FTX levels in December.

Macro climate looking more optimistic

It’s not just the respite from within crypto circles. The broader macro environment is looking at least a little brighter today than it was last month. Inflation is still rampant, but there have been two consecutive readings below expectation, and there is renewed hope that it may have peaked.

The most recent round of interest rate hikes hit rates at 50 bps versus 75 bps in the previous two months, and while Fed Chair Jerome Powell and other central bank chiefs have affirmed that rates will keep rising until inflation is conquered. Markets turned cautiously higher after European inflation came in at 9.2% compared to 10.1% last month.

Next up is the US CPI reading on Thursday, which – as always – will be an important day in the markets. Expect volatility in the crypto markets as Coinbase stares at the numbers to try to gauge what Jerome Powell might do with regards to interest rate policy.

After all, we know by now that crypto is holding the hand of the stock market – except when, you know, high-profile executives are revealed to be fraudsters (FTX), or the top 10 coins cease to exist. (LUNA).

never long a dull moment in crypto

Back in late October, bitcoin seemed to be locked in a crabbing motion around $20,000. With traders getting impatient, I warned of how crypto could be one event away From a lousy bottom wick. Tea

Three weeks later, FTX collapsed. I never thought this would happen, and the timing was coincidental, but the premise of the piece reminds me of how I feel now. It’s amazing how short memory markets have, but we’ve been here before.

Crypto will not remain silent for long, and the asset class is not out of the woods yet. The aforementioned happenings around DCG, GBTC, Genesis, and Gemini are just a few of the millions of things that could turn south at any moment.

There’s also the story about Binance chief Changpeng Zhao being investigated by the SEC for money laundering crimes, Coinbase laying off 20% of its staff following a 905 drop in its share price, and god knows what will come out of the testimony. The Sam Bankman-Fried Court Proceedings.

And then there’s the macro, where anything could happen to inflation, the Russian war in Ukraine or a myriad of other variables. Have a quiet few weeks but don’t worry – the craziness will soon return.

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