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The collapse of Silvergate, a key banking institution supporting crypto exchanges, and the continued aggressive stance by US Fed have led to speculations of a continued bear market for crypto (and overall global financial markets) this year. Investors who remain patient leading into the second half of this year will benefit the most.
Today, we track key trends that point us to more pain ahead for Bitcoin enthusiasts.
1. Silvergate has collapsed, largest bank to collapse in the US since 2009
Since 2014, Silvergate Capital Corp has been the main banking institution that has supported crypto ramps (converting US Dollar to crypto and vice versa). At its peak, it supported nearly 1,600 crypto exchanges, financial institutions, hedge funds, and others. The collapse of FTX that led to steep withdrawals from the bank has created a bank-run situation that eventually led to its demise.
Silvergate’s stock price in the last 6 months:
Source: Financial Times
This has created new uncertainty among crypto exchanges and investors as other US banks continue to remain wary of crypto partnerships. Also, this is likely to lead into more regulatory scrutiny on banks’ exposure to crypto overall. Global stock indices and Bitcoin (naturally) have dropped significantly since.
2. US Fed intensifies fights inflation which may not have peaked
The US Fed gave indications this week that future interest rate hikes can go higher this year in order to fight inflation. Having increased interest rates by 25 bps in the last round, there is a high likelihood of a 50 bps rate hike this month (62%) according to economist consensus. This implies that softening of the Fed’s stance is still months away. This maybe in preparation for an impending recession in the US – if this happens, risk-on assets like crypto will lose a lot of value quickly.
Source: CME Group
3. The US Dollar is regaining strength
DXY, the US dollar index, is regaining some lost ground this month. From its local highs in Oct-Nov, it has been on a downtrend which led to a rally in Bitcoin early this year. Now, this trend has reversed and likely continue as interest rates remain high. As investors get good returns on US dollar deposits across the world, risk-on assets will see an outflow of capital in the short term.
Source: TradingView
4. Bitcoin whales have been preparing for a dump
We can’t fight the whales but we can keenly observe their moves. The number of address with more than 1,000 BTC have been reducing since the start of this year. This points to a preparation for a quick dump on exchanges (which may be happening today).
Source: Glassnode
What can you, the investor, do in these testing times?
Preserve and grow your capital: Don’t deploy all your cash into crypto yet. Use DCA approach to gain positions but wait for an eventual low in the markets before you deploy them all. Markets are likely to regain strength post June-July this year. When possible, gain some value via US Dollar deposits in the interim.
When you buy, buy Bitcoin: Outside stablecoins, BTC remains the only way to preserve your positions in case of a recession in the US which will affect all markets. Altcoins will likely bleed more.
Use promocode TNM51 at www.giottus.com/profile#promo after registration to get Rs.51 worth free Bitcoin.
Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.
