Institutional Accumulation Is Back on Trend – Cryptocurrency Market Overview (27.1. – 9.2.)
Over the past two weeks, the total market capitalisation exceeded €987 billion. The increase in market capitalisation over a 14-day period is 2.7%. The price of Bitcoin has risen by 0.24% over the last 14 days to a current value of over €21,150. Bitcoin’s dominance is currently around 41.2%.
Institutional Accumulation Is Back on Trend
The latest „Digital Asset Fund Flows Weekly“ report from CoinShares on 30 January showed that a 39.6 % increase in Bitcoin’s price in the first month of the year is sparking renewed institutional interest in cryptocurrencies.
It only took a few weeks for the Bitcoin price to recoup its previous losses related to the FTX crypto exchange crash. From a local low of $15,400, Bitcoin’s price climbed back up to $24,000, causing a significant reversal in institutions‘ investment preferences. According to the report, during the last week of January, institutions invested a total of $117 million into cryptocurrencies, marking the largest institutional capital inflow since June 2022.
It is also triple the amount of capital inflows compared to the last week of January when institutions invested 37 million in cryptocurrencies. At the same time, the value of total assets under management rose to $28 billion, up 43% from November 2022.
Germany was the surprise leader of capital inflows during the last week of January, responsible for up to 40% of the week’s tally, followed by Canada and the United States.
Even though several altcoins have seen solid recoveries over the past few weeks, Bitcoin is still the most interesting for institutions. Up to 98% of total capital inflows have been invested in Bitcoin. The Ethereum and Solana cryptocurrencies also saw small inflows. Thus, the current price levels of cryptocurrencies seem to be very interesting for institutions. Source
Bank of England Publishes Paper on the Digital Pound
The Bank of England continues to push ahead with its plans for its own central bank digital currency (CBDC) with the release of a new consultation paper on the digital pound.
Earlier this week, the Bank of England, in conjunction with HM Treasury, published a paper on the digital pound, which will reportedly be subject to strict privacy and data protection standards and will be designed to allow users themselves to make decisions about their data. However, the Bank of England has said that it is too early to decide on launching the digital pound but judged it likely that one would be needed in the future.
According to the document, CBDC should mainly be used by households and businesses for everyday payment needs. In addition, the CBDC should also be used for online shopping in the future, with its transfer between users themselves being allowed.
The digital pound will exist alongside cash and will be convertible into cash. The document also states that the digital pound will also be accessible via smartphones, suggesting that the central bank is likely to develop its own digital wallet.
The bank has admitted that cash payments are slowly on the decline in Britain, supporting its push into the digital economy. In 2021, card payments accounted for almost 60% of payments in the UK, with 32% of all payments being contactless. However, the bank is not ready to eliminate cash just yet since it remains popular with many citizens.
According to the information available, the Bank of England and the government should not have access to any personal data when the digital pound is used. This statement is intended to allay fears that governments will use the CBDC as a financial surveillance tool. Source
The Crypto Community Responds to the Disaster in Turkey
Southeastern Turkey, along the border with Syria, was hit by a massive earthquake on 6 February, which has so far claimed more than 11 000 victims. The earthquake reached a magnitude of up to 7.8 on the Richter scale, which is internationally categorised as a very strong earthquake.
The infrastructure in the area has suffered major damage, leading to a huge material and humanitarian disaster. The whole world has responded to this disaster with great resilience. On the Internet and social media, people started collecting funds in droves for local and international aid organisations to provide assistance to the people in the affected areas.
Several projects and exchanges from the world of cryptocurrencies quickly joined in to help the residents of the affected areas. Bitfinex, Keet, Synonym and Tether were the first to respond to the disaster, announcing that they will donate 5 million Turkish Liras (approximately 266 thousand dollars) to help with the earthquake recovery.
One of the major initiators was the Avalanche Foundation, which joined the cryptocurrency fundraising appeal and itself donated 1 million dollars in AVAX tokens.
Justin Sun, founder of the Tron project, and Changpeng Zhao, founder of the Binance crypto exchange, also joined in the support. Justin Sun pledged $1 million in TRX cryptocurrency, and Binance management decided to distribute $100 in BNB cryptocurrency to each user in the affected region, with Binance’s donation amounting to around $5 million. It is really important to help those who need help in a difficult situation. Source
NFT Project on Bitcoin Is Dividing the Crypto Community
Do NFTs really belong on the Bitcoin blockchain? This question is certainly being asked by more than one Bitcoin fan these days. After the Ordinals project launched support for NFTs on Bitcoin back in January, a heated debate started in the crypto community.
The Ordinals project has engulfed the bitcoin community and sparked discussions and questions about what the purpose and ultimate function of the bitcoin network actually is. For some, Ordinals has opened Pandora’s box of threats to the bitcoin network, including malware attacks and skyrocketing transaction fees, while others welcome NFTs on Bitcoin.
However, the crypto community is very divided and polarised in this regard. On one side are those who think that NFTs on Bitcoin will encourage adoption and new use cases while at the same time increasing transaction fees and thus supporting miners on the network. In practice, bitcoin transaction fees are determined by the amount of data in the transaction and the speed at which the user wants to complete their transaction. Users who want their transactions to go faster may choose to pay higher fees to place their transactions in the next block. This is also why higher transaction fees can currently be seen on Bitcoin, with the average transaction fee on the Bitcoin network rising from $0.80 to approximately $1.7, according to data from Ycharts.
Rising transaction fees are an obvious side effect of adding NFTs to Bitcoin’s main network. This doesn’t sit well with the other part of the community, which thinks that NFTs don’t belong on Bitcoin and Bitcoin should retain its original structure and serve as a decentralised payment system. Some members of the community have called the Ordinals project an „affront to the bitcoin ethos“ that will only allow the decentralised network to be unnecessarily spammed and overwhelm the blocks.
There are countless blockchains in the cryptocurrency market that support the functionality of NFTs, and some are even specifically geared towards NFTs and towards video games created on the blockchain. Therefore, part of the Bitcoin community is sseptical about whether there is really a need for Bitcoin to become the next „playground“ for digital collections. Source
Are Retail Investors Catching the FOMO Effect?
The year 2022 proved to be one of the worst years for cryptocurrencies in terms of prices, with Bitcoin alone losing over 65% of its value during 2022. Several factors were behind this massive decline, including macroeconomic uncertainty and rising inflation, or the collapse of former giants such as Terra and FTX.
However, the beginning of 2023 was very positive for Bitcoin and the entire cryptocurrency market. Bitcoin rose above $24,000 for the first time since August 2022, and several altcoins notched gains in the tens of percent in January.
An interesting phenomenon was seen on the Bitcoin blockchain during January, indicating that after the $20,000 price level was crossed, many retail investors likely fell into the familiar FOMO effect. This is justified by the fact that the number of addresses with a balance of 0.1 BTC or less has increased by over 600 thousand since the beginning of this year. Thus, from the retail side, it is possible to observe a huge accumulation of Bitcoin.
Another natural development that resulted from the price increase was the change in the fear and greed index. The well-known metric that tracks the current mood of the crypto market has recently moved from the fear to the greed area for the first time in the last 10 months.
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The Fed Raised Interest Rates
Earlier this month, the Federal Reserve raised the benchmark interest rate by 0.25 basis points, bringing the base rate to a range of 4.50% to 4.75%.
Markets had widely anticipated a rate hike, with analysts expecting a 25 basis point increase with a 98% probability and a 50 basis point increase with only a 2% probability. There were no surprises, and both equity indices and the cryptocurrency market reacted to the rate hike with modest gains. February’s rate hike is the eighth since the beginning of 2022.
Already next week, on 14 January, new data regarding inflation in the United States for the month of January will be released. Also, based on these results, it will be possible to predict which direction the Fed’s monetary policy will take in the coming months. Source
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