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Why miners' stocks are showing double-digit gains

The stocks of major mining companies have jumped by an average of 20% in the past 24 hours. Marathon Digital, Hut 8, Hive Blockchain, Riot Platforms (Blockchain) and Bit Digital have all shown double-digit growth. Even Core Scientific, with its ongoing Chapter 11 bankruptcy proceeding, has seen 16% growth.



Meanwhile, Bitcoin has risen by a modest 4% to $17,200 since the start of the year, and mining difficulty may jump by 10% in six days. The combination of these factors will lead to another decline in the profitability of crypto mining.



Investor optimism is linked to a desire to buy shares at the bottom (securities have dropped from their highs more than Bitcoin has) and the expectation that the Fed's monetary policy reversal is imminent.

Over the past year, the regulator has been tightening the nuts, raising its key rate and causing an outflow of funds from risky assets. Its actions were first and foremost aimed at reducing inflation, which exceeded 9% in the US in July 2022. As a result, price growth has slowed and is forecast to have hit 6.5% at the end of December 2022.



Since high interest rates cause economic growth to slow down in addition to lowering inflation, some experts suggest that the Fed is abandoning its plans to hike the Fed Funds Rate further. For example, Blue Line Futures president Bill Baruch believes there's a strong possibility of the Fed making this move as soon as its February meeting, in which case, markets would see a "strong rally".

This is the outcome mining companies are hoping for. For example, according to CNBC, Core Scientific is using bankruptcy proceedings to buy time. It has 300 days to offer and approve a crisis recovery plan with investors. Analysts at B. Riley Financial calculate that the company will be able to generate enough revenue to service its debt if Bitcoin reaches $24,500 per token. If the cryptocurrency grows to the desired level, there would be no need to restructure the company under Chapter 11.

Another example is Argo Blockchain. To avoid bankruptcy, the company reached an agreement with Galaxy Digital in late December to sell a mining centre in Texas and secure a $35 million loan. Argo shares are up more than 56% this year.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Bitcoin: quiet before the storm...again

Bitcoin's 30-day volatility indicator is at a two-year low, and in recent days, the cryptocurrency has been hovering below gold, the US Dollar Index and the S&P 500. This picture is typical of a deep bear market when network activity falls and investors experience maximum pain.



FTX's collapse in early November caused a short spike in network activity that showed in the appearance of new Bitcoin addresses. However, since then, the average monthly indicator has returned to its annual base level. This indicates that a low level of interest in digital assets remains among a wide audience. The curves reversed in May 2021 after China banned financial institutions from performing cryptocurrency transactions.



The drop in interest in the network is more clearly visible in the chart of daily transfers. While their volume exceeded $40 billion in Q3, that figure is now below $6 billion. The biggest drop-off was seen in the group of transactions over $10 million, which shrank from 43% to 19%.



As we've noted on several occasions, Bitcoin's main driving force since 2020 has been institutional investors who act with an eye on US monetary policy. Key interest rate hikes in 2022 caused a natural outflow of capital from risky assets, a trend strengthened by the collapse of crypto projects. Since reaching its high, Bitcoin's realised losses have totalled a record $88.4 billion.



With these lows and the drop in volatility, a return to growth for Bitcoin can't be predicted just yet.



However, they indicate that a turning point is near. This could come in the form of the Fed opting not to hike the key interest rate further since raising it both helps to combat inflation and slows down economic growth. The regulator's next meeting is scheduled for 1 February.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

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Avalanche takes off on news of its partnership with Amazon

Avalanche was the first layer 1 blockchain to sign a partnership agreement with Amazon. As part of Amazon Web Services' (AWS) product development, the companies will put forward scalable blockchain solutions for end users, businesses and governments. In just two days, the coin saw its value increase by 24%.



Like Solana and now Ethereum, Avalanche is based on a Proof-of-Stake algorithm, although it's beating competitors thanks to its full package of technical features. For example, Ethereum is extremely slow, reaching a maximum of just 20 transactions per second. Solana has good speed but experiences regular network outages.

Avalanche is stable and highly efficient. At less than 2 seconds, the time it takes to complete transactions is among the highest. By comparison, it takes Ethereum 6 minutes to complete a transaction.

Avalanche achieves excellent results by breaking the blockchain into subnets with separate functions. As such, C-chain is responsible for smart contracts operating, and P-chain coordinates validators.



The partnership with Amazon will make it easier for developers to run and manage decentralised applications on Avalanche. AWS customers will also be able to deploy custom subnetworks. Node operators will be able to work on AWS GovCloud, which provides a cloud service for government agencies with the highest security and privacy.

Ava Labs CEO Emin Gün Sirer emphasised that Avalanche is AWS's first blockchain partner. Other networks have previously announced partnerships, but they were actually just Amazon customers.



Amazon isn't Avalanche's first big partner. Just last month, a similar agreement was reached with Alibaba Cloud, the largest provider of cloud services in the Asia-Pacific region.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

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Ethereum's weak growth is linked to March's hardfork

Following Ethereum's transition to PoS, validators' funds placed in a deposit contract remain staked. The combined volume currently exceeds 16 million ETH or $22.5 billion, which equates to 13% of the coin's total supply.



Shanghai, Ethereum's hardfork in March will remove limits, something that could cause some validators to want to sell off their ETH. Right now, 72% of their coins are 'underwater', i.e., suffering unrealised losses. Most validators expected the coin's value to rise after it transitioned to PoS, but those hopes have not materialised.



The chart below shows that Ethereum and Bitcoin's exchange rate difference has remained at the same level since June 2021, although Ethereum was leading in the previous 18 months because of the DeFi and NFT sectors' development.



The loss of momentum stemmed from increased competition in those sectors, but the trend changed after Terra (LUNA) collapsed in May 2022. Ethereum's share has increased from 50% to 60% from then, as it remains the most trusted one among blockchains supporting smart contracts according to community evaluations.



The renewed interest in Ethereum could have caused the altcoin to strengthen against Bitcoin. However, it didn't gain a leg up for several reasons, including the significant contraction of the NFT and DeFi sectors in 2022, as well as regulators' close attention to Ethereum due to its transition to PoS and the network's increased centralisation.

Now, the risk of a significant increase in supply after coins become unlocked is added to these negative aspects. On the day of the 'merge', whales from the top 10% (miners and crypto exchanges are excluded from subaccounts) transferred 3 million ETH to exchanges to sell reserves, which prevented bullish movement from solidifying. In March, 16 million ETH will be unlocked. If one-fifth of validators decide to get rid of coins, the hardfork will once again fail to meet investors' expectations.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Bitcoin: Just a bounce in a bear market

Bitcoin is starting off 2023 with a winning session, finishing the second week up 16%, its best result since last March. Investors and miners who have achieved hashrate record updates after adding new equipment are full of optimism. Nevertheless, the macroeconomic situation remains extremely tense.

Bitcoin has risen by 27% to $21,000 since the start of the year.



The Fear and Greed Index moved into neutral territory for the first time since April, reaching 51 points.



And despite significant financial difficulties, miners renewed records for hashrate and mining difficulty, the latter of which jumped by 10%. The total processing capacity is now estimated to be 274.6 EH/s.



The nearing end of the bottom formation is indicated by the length of the current bear cycle. The second-longest in history, it's been going 179 days. The metric countdown begins when Bitcoin falls below its realised price.



The current potential bottom for Bitcoin is similar to the one seen in 2019 in some ways, but with one significant difference. At that time, the Fed had already moved to quantitative easing. Now, the regulator isn't loosening its grip, and the CME FedWatch is forecasting a 92% probability that the key interest rate will rise by a further 0.25% on 1 February.



Bloomberg senior analyst Mike McGlone notes the difficult macroeconomic environment globally and the continued reduction in liquidity in stock markets caused by, among other things, monetary policy:

If the Nasdaq collapses, everything collapses, including Bitcoin. What we are witnessing now is just a bounce in a bear market.

On the other hand, while the Fed has already had some success in reducing inflation, a high key interest rate limits the development opportunities for businesses. Elon Musk is among those criticising the monetary policy and forecasting a recession if it stays high. If the regulator steps back and refuses another hike at its next meeting, Bitcoin will get a new boost.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

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Whales and institutional investors ignore Bitcoin's rise

The crypto market has come back to life in 2023. Since 1 January, the market's overall capitalisation has risen by 24% to once again reach $1 trillion. Bitcoin jumped up 28.5%, more than the average recovery rate.



Market participants' enthusiasm drove Bitcoin trading volume up over the week. In the spot market, the figure rose to $11 billion. Following trading volumes and price growth, volatility increased to 2.4% versus the sub-1% level it saw in the first week of January.



The market's rise was a surprise for bears. Over the past seven days, they've lost $1.2 billion on Bitcoin alone, and the volume of liquidated positions in relation to bulls reached a sixfold difference on some days.



Whales (>1,000 BTC) didn't share the same optimism as shrimps (<1 BTC). They didn't take advantage of the current price rise to sell more. On the contrary, they slightly reduced their market presence.



Institutional investors acting through exchange-traded funds maintained their low trading volume, which reached $866 million last week. The flow of capital to Bitcoin funds rose by a meagre $10 million.



The lack of interest among large participants is also confirmed by the number of addresses containing more than 1,000 BTC. Movement remains downward after China banned financial institutions from conducting cryptocurrency transactions.



Bitcoin's current rise is largely due to the forced closing of short positions, as well as small investors' desire to try their luck by buying cryptocurrency at the bottom. Whales have still not switched to accumulating, and institutional investors are apathetic to the market at present. Macroeconomic indicators are still contrary to trader sentiments. The Fed is likely to raise interest rates again in February, and the global economy is still at risk of falling into recession in 2023.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

After a pump-and-dump, FTX has only $0.7 billion of Solana left

Cryptocurrency financial fraud is one of the key allegations against Sam Bankman-Fried (SBF). According to the New York Times, the former head of FTX negotiated with startup developers to offer the listing of new coins on his platform on mutually beneficial terms. SBF ran a vigorous advertising campaign on the days the coins were added to the platform, while Alameda was busy pumping the price as part of a pump-and-dump strategy.

While attracting the masses and creating artificial growth, Alameda off-loaded the number of coins it received from developers, thus boosting its profits. The media dubbed coins possessed by Sam as 'Samcoins'. These include low-liquid instruments such as Maps, Oxygen or Bonfida. Recent big names include Serum, a joint project between Solana and FTX to launch a decentralised exchange. And Solana is the most painful item on the list for the community.

With the cryptocurrency exchange's collapse, this close relationship went badly for Solana. In just a week, the cryptocurrency lost half its value.



At this point, it's unclear to what extent Solana's and FTX's developers cooperated since the manipulations could have been SBF's initiative. It's worth noting that the liquidation commission counted SOL as the largest asset by value, with a balance of $685 million, almost three times more than BTC or any stablecoins.



The coins are still being counted since the assets of all companies (around 100) in this 'crypto empire' need to be combined, and some of the reserves are still on third-party exchanges. According to the commission's preliminary estimates, a total of $5.5 billion in assets has been identified. Of that, $3.5 billion of it is in cryptocurrencies. SBF's total debt is estimated to be $8.8 billion.

For Solana holders, the news isn't anything to cheer about because, once legal arguments are over, the liquidation commission will start selling coins to cover the damage caused to investors. Dumping the reserves will likely lead to a decrease in the cryptocurrency's value.


StormGain Analytics Team (https://stormgain.com/)
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Cryptocurrency transfers save up to 80% versus bank-to-bank exchanges

Experts from Uniswap, the largest decentralised protocol by turnover, and economists from Circle prepared a report (https://deliverypdf.ssrn.com/delivery.php?ID=955110070000009089127108012071005125103089070072017051023007106024110075093124017091011035123120033038109005007005025107077019122071014073050111064003095117067077084008028018071114067092124018102027027012112099110001029014073011088095089026105008031125&EXT=pdf&INDEX=TRUE) comparing traditional international bank payments with the alternative proposed by the DeFi sector. Cryptocurrencies not only provide a faster and cheaper solution to the problem but also reduce a number of associated risks.

The foreign exchange market processes around $7 trillion every day. Despite stable operations, around a third of all daily transfers risk not being delivered due to the complexity of the correspondent settlement model and the long chain of intermediaries. The Bank for International Settlements estimates that this amount has risen from $1.9 trillion in 2019 to $2.2 trillion in 2022.

Settlement risk was dramatically demonstrated in 1974 with the closure of Bankhaus Herstatt. Because a number of payments stalled, it resulted in related transactions not being executed. Three days later, the payment system's turnover in New York had dropped by 60%. Read more in the note "Herstatt Risk".

An exchange done in a cryptocurrency through smart contracts lacks the bundle of disadvantages in the traditional system. There's no need to be linked to national payment systems, end users are at the centre of the transactions, messaging and settlement layers are unified, processes are more transparent, and there's no risk of market makers' manipulation. This is illustrated in the scheme below, where some participants use banks to transfer money from the US to Europe, and others use a decentralised exchange:



Uniswap has already surpassed $1.2 trillion in trading volume since it was founded in 2018. Similarly, EUROC/USDC has exceeded $124 million in trading volume in the EUROC/USDC pair since the EUROC stablecoin was introduced in July 2022.



Despite much smaller volumes, the traditional currency market spread widening associated with the opening and closing of regional markets doesn't take place when exchanging stablecoins. The gap with the forex price averages between one and five pips and is driven by the liquidity pool commission.



According to researchers' calculations, despite the higher cryptocurrency transfer fees, where charges also apply for depositing and withdrawing funds, savings in international transfers can reach 80%. This is due to the high fees charged by banks, which can amount to between 5% and 20% of the transfer amount for a similar service.

The problem is most critical for developing countries with a large number of migrant workers. In 2021, for example, the share of transfers in total GDP exceeded 20% in El Salvador, Lebanon and Honduras. Meanwhile, the total amount sent to low- and middle-income countries exceeds $500 billion. If cryptocurrencies were used, households could save up to $30 billion annually.



The DeFi sector can contribute significantly to reducing the costs of international transfers. The report's authors acknowledge that gaps in government regulation and the difficulties associated with securely storing cryptocurrencies are slowing the industry down. However, they're confident that further growth in the cryptocurrency market will increase the attractiveness of blockchain solutions.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Miners sell off Bitcoin reserves at a record rate

In Bitcoin's current rise, miners have found a great opportunity to dump reserves, with some big players choosing to get rid of all their coins. Fewer crypto miners remain committed to holding out, fearing a repeat of the steep 2022 crash.



After Terra collapsed last May and Bitcoin fell below $30,000, miners saw a significant decline in mining profitability, the negatives of which were amplified by their loan commitments. Because of this, the vast majority of players gave up on the idea of hodling and transitioned to reducing their reserves. With the exception of August, month after month, public miners were dumping more coins on the market than they were generating.



Some crypto miners had to sell off ASICs to stay in business during such a difficult period. Others found a way out with new loans, while some had to declare bankruptcy. Bitcoin's 30% price increase in the first 10 days of 2023 was seen by many as a godsend.

At the same time, they've reduced their holdings at a record pace over the past two years, bringing the total to 1.84 million BTC. That level was last seen in November 2021.



A high level of indebtedness is among the reasons for miners' distress. Industry leader Core Scientific ran up to $1.8 billion in total debt last year and was forced to initiate bankruptcy proceedings. Companies that are more cautious in their financial strategies found the 2022 challenge to be an excellent opportunity to expand their business and buy ASICs at 80% and 85% cheaper.

This explains both the increase in mining difficulty to new records and the gap between the rise in yields from the rise in prices..



Since 2022 has greatly increased the stakes in the competition for every dollar from the capacity hash, some participants have decided not to test their fate further, instead opting to take advantage of the current market upturn. For example, the 1Thash pool has almost stopped mining coins. It sent the leftovers to a cryptocurrency exchange in the last three days. A total of 5,732 BTC worth $131 million was transferred. Miners usually transfer coins to cryptocurrency exchanges to then be sold.

The ongoing challenges in the mining market will further reduce miners' reserves. In the absence of a significant positive environment, a strong increase in supply on the market could not only stop growth but also lead to a reversal of the emerging trend.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Institutional investors bet on Bitcoin dropping

Bitcoin has risen by 39% since the start of the year, which is seen by some market participants as a sign of the end of a bearish cycle. Others, in the meantime, are rushing to ramp up sales before the coin's price falls again. In our previous article, we covered the miners who are getting rid of reserves at record speeds. Institutional investors are also pessimistic.



Last week, cryptocurrency funds experienced inflows of $37 million, of which $25.5 million came from short positions, in which profits are generated when the asset's value falls. Institutional investors invested just $5.7 million in Bitcoin moving up last week. In terms of the geographical breakdown, US investors showed the strongest bearish sentiment (95% of investors).



Unlike miners and institutionalists, retail traders are looking to buy cryptocurrencies at the lowest possible price.



This was reflected in the funding rate rising to its highest level in eight months. This rate increases when bulls dominate bears in futures trading.



There's still hope since a number of network indicators show a great deal of similarity between bearish cycles and the potential transition to a new growth phase. The supply profitability indicator has jumped from 55% to 67% (a difference of 12%) in the last two weeks. In past bear cycles, a similar surge has preceded a market rebound.



All that said, the likelihood that the movement seen in January will continue in the same way remains low due to complicated macroeconomic conditions and a continuing reduction of liquidity in financial markets. These circumstances are what's leading big players to count on a drop.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Aptos grew fivefold in a month. Traders bet on the cryptocurrency to fall

Aptos is an ambitious project from the developers of the failed Libra cryptocurrency, whose release was opposed by the European Central Bank in 2019. After separating from Facebook, the #DevelopmentTeam  attracted hundreds of millions in investments to launch a new Tier 1 blockchain. The project was supported by Andreessen Horowitz's fund, Coinbase Ventures, FTX Ventures, Circle Ventures, Jump Crypto and other major market players.



Aptos is marketed as a 'Solana killer' due to its super-fast transactions. The test network managed to achieve a speed of over 130,000 transactions per second. This and other technical features are described on the official blog.



On 17 October 2022, the network was launched, and on 19 October, APT was listed by major cryptocurrency exchanges. Because of the high speculative demand on some exchanges, the peak price at the opening of trading exceeded $50.

But long-term investors should be cautious. The risk lies in the pre-listing financing rounds, where investors received a significant share of APT. A lot of coins were kept by the developers, as well. According to users' calculations, about 80% of the supply remains in the hands of large participants, while no more than 2% was distributed during airdrops. The official breakdown is as follows:



49% of the funds are owned by the main investors, the fund and the developers. 51% belonging to the community is still controlled by the Aptos team. These funds will be distributed over 10 years for grants and other network development initiatives.

Another warning factor is the large volume of staked funds. The price is now rising on hype and an ongoing promotional campaign. According to Coinstats, only 16% of the 1 billion minted coins are in circulation. The rest will be unlocked according to this schedule:



Currently, 4.5 million coins, or 0.45% of the total supply, are unlocked every month. Starting 12 November, the pace will be increased to 24.8 million coins (2.48%).

APT isn't the first coin to follow this path. If blockchain fails to surprise the community with impressive growth rates, the released supply will lead to a significant price drop. Foreseeing such an outcome and anticipating profits from APT's drop, traders of perpetual futures contracts are actively opening short positions. Because of the significant dominance of the bears, the funding rate broke the 2023 low, dropping below -0.1%.



It's possible that the increase in the price this year to $20 is due mainly to the creation of artificial demand, as expressed in the emergence of new addresses network activity is far from the October highs. With the vast majority of coins remaining staked. In private presales, investors bought APT for $1 or lower, which creates the temptation to sell the reserves after unlocking.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Goldman Sachs: Bitcoin the best asset of 2023

With Bitcoin rising by 40%, January 2023 could be the best month for the cryptocurrency in the past 10 years. Goldman Sachs, one of the biggest banks in the world, rated the cryptocurrency as the most profitable asset when adjusted for risk. Bitcoin has outperformed gold, the stock markets and the real estate sector by a significant margin.



Just a year ago, Goldman Sachs predicted Bitcoin would reach the $100,000 mark in the long term since the digital asset would eventually take a share from gold, which is seen as a safeguard against inflation.

Analysts from Pureprofile arrived at this same figure after conducting a study commissioned by Nickel Digital Asset Management. The experts interviewed included 200 institutional investors and asset managers from the US, the EU, Singapore, the UAE and Brazil. The respondents manage a combined $2.85 trillion in total assets.

The study found that 9 out of 10 investors predict that Bitcoin will see its price rise in 2023, and two-thirds of those surveyed agree that it could hit $100,000 in the long term. Of all respondents, 23% expect its price to rise above $30,000 by the end of this year.



Markus Thielen, an analyst at Matrixport, wrote in a note to his clients that the January bump was largely due to interest by US institutional investors. He added that organisations were buying both spot and futures contracts, which was reflected in the premium. He went on to add that Matrixport interprets this as a sign that hedge funds are buying up the long crypto market drop.

The Chicago Mercantile Exchange's (CME) Bitcoin Futures Open Interest chart also shows increased interest in the cryptocurrency. Movement on the chart significantly surpasses the price: January had a 77% increase, reaching $2.3 billion.



While the price's current rise is provoking a response in investor sentiment, market participants should exercise caution. The Federal Reserve has not yet abandoned its monetary policy tightening, and the risk of the global economy plunging into a recession remains. If traditional financial assets collapse, Bitcoin will have a hard time maintaining its positive movement.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Bitcoin's contradictory growth

Bitcoin's rise to $24,000 was greeted with enthusiasm by some market participants, and institutional investors' forecasts began once again to talk about the cryptocurrency potentially reaching $100,000. Despite a slight revival, not all indicators support a positive outlook.



January is about to be the best month in 10 years for Bitcoin, which rose by 40% in that time. Institutional investors, who until a fortnight ago invested in short funds ($25.5 million versus $5.7 million), showed the best demand for cryptocurrency in the past six months. The Bitcoin ETF had inflows of $116 million last week.



Whales, who withdrew an average of $25 million worth of Bitcoin daily from cryptocurrency exchanges in January, also contributed to its price growth. They didn't use this rise for the classic reserve sell-off, which supported the coin's momentum. The second factor was the massive closing of short positions (mainly from stop losses), which also acted as a trigger. In total positions liquidated, the share of bears reached 85%, higher than for bulls at the time of FTX's collapse.



This suggests that Bitcoin's January 2023 rise was technical in nature as fundamental demand for the cryptocurrency remains low. Total open interest on cryptocurrency exchanges continues to decline, falling from 650,000 BTC in mid-November to the current 414,000 BTC. A similar pattern is shown by the decline in Bitcoin's overall turnover on the network, lagging significantly behind the annual average.



Bitcoin is an oversold asset. As of 1 January, long-term holders of the last five years have incurred unrecorded losses.



It'll be challenging to maintain the momentum gained in January due to the lack of widespread demand and persistent liquidity outflows from financial markets.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Litecoin's prospects for a rally in 2023

Litecoin was created in 2011 to process transactions faster and cheaper. Blocks on its chain are created four times faster, and transaction speed reaches 56 transactions per second (TPS) compared to Bitcoin's 7 TPS. The coin must be mined, its emission is technically limited, and its mining reward regularly decreases. When comparing the two cryptocurrencies, Bitcoin is referred to as gold, and Litecoin is silver.

Despite some similarities with Bitcoin, future market developments, including the emergence of super-fast networks powered by smart contracts, have led to Litecoin's drop from 2nd place by market capitalisation to 13th. If the coin is 'silver', it really is quite undervalued and has strong arguments for a potential rally in 2023.



Crypto market recovery

Last year's market downturn was caused by the US Federal Reserve's monetary policy tightening, which led to an outflow of liquidity from risky assets. This, in turn, exposed a number of crypto projects' failures and breaches of trust. Most of those caught up in these misfortunes have already left the market or are going through bankruptcy proceedings.

But this year, the pendulum is ready to swing in the opposite direction. Many economists believe that February and March could be the last months we'll see an interest rate hike from the Fed. A future pause and even an interest rate drop could lead to heightened demand for risky financial instruments. This is especially true amidst relatively high inflation.



With the crypto market's overall rise, altcoins are outpacing Bitcoin. This trend was also seen in the 2017 and 2021 crypto rallies. Below is a chart of Bitcoin's market share relative to altcoins.



Litecoin was no exception. It had gained on Bitcoin before China issued a prohibition on financial organisations performing crypto-related operations in May 2021.



Regulatory guillotine

Litecoin could get some unexpected support from a change in status from a digital currency to a security on a Proof-of-Staking protocol. The head of the SEC announced such plans the day that Ethereum switched to its PoS algorithm. If the regulator succeeds in this regard, the largest crypto exchanges will likely refuse to support such coins.

If stablecoins and PoS coins are excluded from the overall ratings, Litecoin could find itself in third place behind Bitcoin and Dogecoin. Ripple is excluded from the ratings because the SEC has similar plans for it.

Halving

Halving is a deflationary mechanism that aims cut block mining rewards by half. In the long term, this leads to a coin's value. In 2023, Litecoin will be the first major PoW network to conduct halving, reducing its mining reward from 12.50 LTC to 6.25 LTC. This will happen around 3 August.

The bottom line

The facts laid out above indicate the high likelihood that the altcoin will outperform Bitcoin if the cryptocurrency market continues to recover. It also points to Litecoin rising significantly in the overall ratings if coins switch to PoS status.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)

[stormgain]

Ethereum lags behind Bitcoin because of the Shanghai threat

Bitcoin was up 40% in January, while Ethereum rose by just 32%. The lag of the largest altcoin is due to the upcoming Shanghai hardfork, an event that will see 16 million ETH (~$27 billion) unlocked for withdrawal.



In November 2020, a deposit contract was launched to attract validators and switch to PoS when the necessary liquidity is reached. Ethereum has since attracted 16.4 million ETH, or 13. 8% of the total supply.



Staking yields were declining with the influx of validators and are now no more than 5%, and deposited funds are still staked. It'll only be possible to queue up for withdrawal after the Shanghai hardfork.

Despite a good start in 2023, 80% of validators are still suffering unrealised losses. Meanwhile, Ethereum lags behind Bitcoin and other promising altcoins. The annual return of 5% doesn't cover the difference, which may be disappointing for some investors.



To make matters worse, the external backdrop for Ethereum hasn't changed for the better since the switch to PoS. First, the requirement for validators to deposit funds in blocks of 32 ETH led to the development of pooling services. As a result, the top four participants (Lido, Coinbase, Kraken and Binance) hold a 56.2% share.



Increased centralisation has led to increased censorship. Since last October, the percentage of transactions approved by the US Treasury Department's Office of Foreign Assets Control (OFAC) has exceeded 60%. One of the largest pools, AntPool, has refused to support ETH 2.0, citing the risk of transaction censorship.

Second, on the day of the move to the new protocol, the SEC chairman announced that he would seek security status for Ethereum as users had the opportunity to generate a passive income via staking. Regulatory pressure on Ethereum will increase if the SEC wins its court case against Ripple about whether the coin is actually a security. The judge is due to deliver the verdict this year.

Summing up the risks involved, some investors can't wait for the restrictions to be lifted to get out of ETH. The impact of unlocking on its price will be stretched over time, as validators will need to queue up to avoid both a collapse in price and a liquidity crisis. The Shanghai hardfork is scheduled to take place in March 2023.


StormGain Analytics Team (https://stormgain.com/)
(a cryptocurrency trading, exchange and storage platform)