At the end of last year, two questions were left unanswered, firstly, if Bitcoin would lead or lag the recovery of risk assets, and secondly, what would happen to Genesis Trading, the large lender under pressure because of FTX? January provided positive answers to both of those questions.
| Bitcoin | Ethereum |
Price (1 Jan. 2023) | $16'547 | $1'196 |
Price (31 Jan. 2023) | $23'139 | $1'586 |
% Return | 39.8% | 32.6% |
On the 19th of January, Genesis filed for a 'pre-packaged' Chapter 11 Bankruptcy, which brought an end to the last major player who was affected by the FTX fallout. The space expected this announcement, and there was no significant price action around the statement. We believe this will be the last major company caught in the fallout. Overall, it was good that the parties resolved the situation, and its resolution has removed the overhang around DCG and its other subsidiary companies. So far, creditors and DCG have agreed on how to resolve the situation. Additionally, there was a string of layoffs across the industry as exchanges and crypto companies (along with the broader tech industry) readjusted to the market's new reality.
Given the sector-specific issues, we wondered if the digital asset prices would lag the broad asset market recovery, given its higher perceived risk. We were uncertain if the market would penalise digital assets and sideline the asset class during the next bull run. However, January proved this was not the case; despite all the above bearish news, Bitcoin was still up 40% for the year, with Ethereum up 30%, making them the best-performing assets for 2023.
The cause of the recovery was the market-wide repricing as the market has reached a consensus regarding a soft landing for the US and became 'risk-on'. A dovish speech by Jay Powell at the Federal Reserve meeting confirmed the market's soft landing view. However, this belief was shaken the next day when a much stronger-than-expected job report was released. Pundits are still very uncertain if the market is correct (it often isn't). This recent recovery may be a temporary respite from further bad news. Regarding which view is right, we are confident that digital assets have remained relevant and haven't been penalised for any sector-specific issues. Staying relevant is very hopeful for the space as the broader recovery will come eventually, and digital assets stand to benefit the most.
November and December saw the last forced sellers leaving the market, which caused a local bottom. In January, the market was trending up but was very illiquid, so any buyers had a more significant effect on prices, hence the sizable percentage gains. The recovery saw Bitcoin outperform the other major digital assets, such as Ethereum. Bitcoin's outperformance is unusual as the smaller ('higher beta') digital assets usually generate a higher return in percentage terms. Typically, Bitcoin outperforms when investors return from holding USD (or other fiat currency). The flow of funds is first into Bitcoin before Ethereum, and other sector-specific tokens start to outperform.
Overall, January's flows paint a hopeful picture where the space has:
Remained relevant in the broader market.
Seen strong price action.
Seen fiat currency starting to re-enter the market.
A strong January bodes well for 2023, with the recovery happening quicker than we first suspected.
Performance
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