First Mover Asia: Bitcoin Tops $23.7K in Wednesday Comeback

Good morning. Here’s what’s happening:

Prices: Bitcoin regains lost ground to trade over $23K again.

Insights: Laguna Labs CEO Stefan Rust wrote in a CoinDesk Q&A that the Genesis Chapter 11 filing prompted a sigh of relief among many in the crypto industry and that bitcoin's short-term price prospects depend on the size of the next Fed interest rate hike.

Prices

Bitcoin's Comeback to $23K

By James Rubin

A Tuesday crypto market pullback turned into a Wednesday comeback as bitcoin soared past $23,700 before retreating slightly.

The largest cryptocurrency was recently trading at above $23,180, up more than 3.1% over the past 24 hours. BTC had sunk under $23,500 at one point Tuesday as investors reaped profits from the crypto's recent surges. Bitcoin has risen more than 35% largely on the tailwinds of declining inflation and economic data suggesting the economy will avoid a severe tailspin. A slew of unfavorable fourth quarter earnings, including tech giants Microsoft and Texas Instruments and iconic aerospace company Boeing, seemed to derail at least the latter part of that narrative by Wednesday, sending stocks lower.

"The January stock market rally might be over and that could drag crypto lower here," Edward Moya, senior market analyst for foreign exchange market maker Oanda, wrote in an email. "Bitcoin could be vulnerable to a dip toward the $20,000 level if the tech-driven selloff on Wall Street intensifies over the next couple of days."

Ether followed a similar pattern to bitcoin, rising from depths near the $1,500 threshold to return to its perch earlier this week above $1,618, a 5.4% gain from Tuesday, same time. Most other major cryptos were in the green with APT, the token of Layer 1 blockchain Aptos, recently up more than 48% over the past 24 hours to hit an all-time high of $18.62. APT is up over 425% since Jan. 1, according to CoinDesk data – the spike likely due to growth in non-fungible token markets on Aptos.

OPT, the native crypto of layer 2 network Optimism, also rose to a record high of $2.34, a nearly 20% gain from the previous day. The CoinDesk Market Index (CDI), an index measuring cryptos' performance, recently decreased about 4%.

Traditional markets traded sideways with the tech-heavy Nasdaq and S&P 500 down a smidgen of a percentage point as investors chewed over corporate results. On Wednesday after markets closed, electric car manufacturer Tesla beat expectations for profits and revenue but struck a cautionary note about the impact of a possible economic contraction.

Meanwhile, crypto exchange giant Binance’s BUSD stablecoin extended its recent declines, amid mismanagement issues involving the exchange’s pegged tokens that surfaced earlier this month, and other debacles.

BUSD’s circulating supply fell to $15.4 billion on Wednesday, paring down $1 billion over the past week and $2 billion in a month, according to cryptocurrency price tracker CoinGecko. The latest drop extended BUSD’s decline from $22 billion in early December when anxious users scrambled to withdraw funds from Binance after it botched a report about its digital asset reserves.

The drop has come as stablecoins' overall market capitalization is down for a 10th consecutive month so far in January to $137 billion, according to a report by research group CryptoCompare. Stablecoin dominance within the broad cryptocurrency market dropped to 12.4% from its all-time high of 16.5% in December, suggesting traders have been rotating from stablecoins into riskier assets, CryptoCompare said.

Insights

Laguna Labs CEO Ties Bitcoin's Prospects to the Fed's Next Move

By James Rubin

Crypto markets have risen this year largely because the industry has flushed the mischief and mayhem that sunk it in 2022 from its system, wrote Stefan Rust, CEO of blockchain technology firm Laguna Labs, in a Q&A with CoinDesk. Genesis Global Holdco LLC's chapter 11 bankruptcy protection earlier this month provided a capstone, Rust wrote. Genesis is the holding company of troubled cryptocurrency lender Genesis Global Capital. (Genesis is also a subsidiary of Digital Currency Group, which is CoinDesk's parent).

"All the baggage from 2022 has been closed out with the filing," he wrote. "This prompted a sigh of relief among many in the industry."

Rust was cautious about bitcoin's near-term prospects, which he pinned on the size of the next interest rate hike by the U.S. central bank. He was more sanguine about ether. "ETH to $10,000 by the end of this year retains the deflationary momentum," Rust wrote, in the course of answering four questions about crypto markets.

CoinDesk: Has the recent decline in inflation and investor hopefulness about the size of the next interest rate hike driven the recent market upturn? What other factors have been involved?

Rust: A growing expectation that interest rates won't rise at 50 basis points is definitely helping and giving investors confidence. However, I don't think that's the main driver. Crypto has gone through 400 days of a bear market and a lot of the true believers are seeing that the financial markets and decentralized finance institutions have pulled out so much so that even the DCG/Genesis/Gemini saga has not had any impact in the market. That is the main driver of the pump: the fact that all the baggage from 2022 has been closed out with the filing of Chapter 11 for Genesis. This prompted a sigh of relief among many in the industry - particularly those in decentralized finance where the opportunity for transparent verifiable finance is manifest.

CoinDesk: Will we hold support at around $22.9K as the market seems to be trying to establish or do you anticipate a retreat? Why?

Rust: I'm not sure whether we will hold that support, especially if interest rates go up by 50 basis points, which we at Truflation are predicting given recent CPI numbers – given that wage inflation was 6.6% and unemployment is still at 3.5%. All those factors lead us to believe that US interest rates will go up by 50 basis points at the next FOMC meeting next week despite the fact there now seems to be a belief in the market for another result. If you look at the numbers, inflation is not yet under control.

CoinDesk: What are your expectations for ether's price and other major tokens?

Rust: Big tokens, especially bitcoin, and any ether are going to do well. We're going to see a faster recovery in the crypto markets than we will see in the traditional finance market. ETH is now deflationary while the chain is seeing hugely increased activity on top of Ethereum developer engagement, faster improvements to the Ethereum network itself, and faster settlement associated with all of the activities. Despite the unlocking of staked ETH coming in with the Shanghai release, a lot of people would be surprised how a large portion of the staking will remain staked. It might move across to liquid staking derivatives that have been a burgeoning market across the Ethereum DeFi ecosystem. ETH to $10,000 by the end of this year retains the deflationary momentum: less supply, more activity, and faster circulation require better value and more distribution to drive digital exchange and digital trade across the Ethereum Blockchain layer 1 and layer 2's.

CoinDesk: You recently noted Binance's growing number of transactions and engagement. But does the increasing amount of scrutiny of exchanges present a threat to the crypto industry this year?

Binance has three or four different entities. It has Binance US, Binance international, and the BNB chain. Binance US is going through the regulatory framework as any other US exchange, while Binance international is already licensed in multiple jurisdictions around the world, and like any large tech company will be scrutinized the very same way that Google is scrutinized, Microsoft is scrutinized and Amazon is scrutinized. All big tech companies always get scrutinized so I think there is no difference in the way that Binance will be scrutinized for this.

Coming to decentralized finance, the BNB chain has a different infrastructure, it is a different beast and has large transaction volume, extremely cost-efficient transaction fees, and fast speeds. Is it fully decentralized? No, but we're seeing the same with Polygon. Distribution is the name of the game. You can focus on decentralizing over time as long as you iron out the kinks and as long as you start the distribution of a decentralization strategy and you're seeing that take place with Polygon and Binance.