Crypto Returns to $1 Trillion Market Cap

For the last few days, Bitcoin (BTCUSD) has been able to hold on above the $21K level. That puts it in the ballpark of the early November peak, just before news of the collapse of the FTX exchange broke out. The leading cryptocurrency subsequently fell enough to poke below the $16K handle a few times. It stayed there for the rest of the year but has staged a near-full recovery over the last couple of weeks. 

In the last eight days, and as of the time of the writing, Bitcoin has appreciated by about 21.5%, which mirrors the one-day loss at the outbreak of the FTX scandal, followed by a potential bailout by Binance, which also didn't materialise. As the most prominent and well-capitalised cryptocurrency, Bitcoin came to represent investor concern around the cryptocurrency market during the period. 

The latest move in crypto has allowed it to return to having over a $1 trillion market cap, but it also came with a record 70% of liquidations in short positions. That is seen as contributing to the uptick in the market since the weekend. Remember that the US was closed for a holiday on Monday, which kept trading volumes lower at the start of the week. The short closing coincided with a surge in transactional activity in several coins, including Cardano (ADA) and SOL (SOLUSD) tokens, as they rose 7.6% and 39.3%  respectively as of the time of the writing. (Source:CNBC)

Soft Inflation Figures Boost Crypto Market

Bitcoin had been moving slowly higher since the start of the year but really took off around the release of December’s CPI figures just over a week ago. That's when the cryptocurrency logged an 8.4% increase in one day. Inflation figures came in as expected, with a substantial drop in rate to 6.5% from 7.1% just the month prior, and well off the peak from earlier in the year.

The hope is that lower inflation would translate into the Fed not raising rates as much or eventually lowering rates. This works in the general correlation between cryptocurrencies and risk assets, such as the tech-heavy Nasdaq (US-TECH 100). Other cryptocurrencies moved higher in the wake of the inflation data, along with the move in bitcoin.

An analyst pointed to negative events having smaller and smaller impacts on cryptocurrency, with sell pressure being absorbed. This argument implies that the market might think the worst is over for crypto, with the latest bad news already priced in but whether or not it holds true is yet to be determined as there are other hurdles standing in Crypto’s way.

Crypto Market Faces Jobs Cuts and Regulatory Scrutiny

Other analysts are warning that the rise might have left upwards momentum overextended, and prices might stabilise soon. This comes in the context of some disquieting news, such as Silvergate Capital, a leading bank that provides services in the cryptocurrency space,  reporting a loss of $1B during the fourth quarter. The crypto bank had previously reported net positive income just three months prior. The loss was driven by investors pulling out over $8B in deposits due to concerns over the FTX scandal. But, the stock price surged in the wake of the report as it announced a series of measures to shore up its finances. That came after it had already announced a 40% reduction in the workforce to cut costs.

However, Silvergate is far from being alone in cutting jobs to adjust to the new market reality. Coinbase (COIN) announced that it would also be cutting 20% of its workforce.

The layoffs come at a time of increasing regulatory security in the wake of the FTX scandal, as just recently, the US SEC charged Genesis and Gemini, accusing the two crypto firms of selling unregistered securities. 

Conclusion

Bitcoin prices have surged recently, along with growing expectations that inflation is slowing down and the economy will have a soft landing. Despite the increase in institutional activity and recovering all its losses since the FTX collapse, those gains come during a period with significant uncertainty for the industry at large, facing scrutiny by the SEC and layoffs in major crypto exchanges.