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Bitcoin has a core of investors who are almost religiously committed to holding onto their tokens.
Evgeny Parilov/Dreamstime.com
The bomb that went off in the crypto industry this month only gave
a flesh wound. There are good reasons why the biggest crypto token has held up despite the mess surrounding it, but now is not the time for investors to go shopping.
That’s not to say the token hasn’t suffered. November 2, CoinDesk published an article that ultimately led to the collapse of FTX, the second largest crypto exchange. In the 16 days from the article’s publication to Friday, Bitcoin’s price had fallen around 18% to $16,500.
Such a rapid decline would mark a calamity in any other market, but for an asset notorious for its volatility, the recent price move is surprisingly modest.
“If you had asked me before this what would happen to the price of Bitcoin in an FTX insolvency with zero chance of recovery, I would have guessed much lower prices,” says Stéphane Ouellette, CEO of the company based in Paris. Toronto.
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a crypto-focused capital markets platform.
A few factors could give Bitcoin strength.
For one, unlike many other tokens, Bitcoin has a strong core of investors who are almost religiously committed to holding their coins, even calling themselves “Bitcoin maximalists.” Every crypto disaster that sends typical investors running for the hills reduces the remaining base of holders to those who are less likely to sell, no matter the pain, Ouellette says.
Wednesday decision by Genesis Global Capital to suspend withdrawals and new loans is a good example. A major setback for one of the largest crypto lenders would have been huge news in any other month, Ouellette notes, but Bitcoin has barely moved, indicating that either the market has already priced in more. of problems, or that the remaining investors are blindly holding on.
A second reason may be that the collapse of other digital asset companies earlier this year has already wiped out much of the leverage in the crypto market that could have fueled a deeper downturn. While FTX’s demise is certainly more startling for investors, it only came six months after the failure of “algorithmic stablecoin” TerraUSD and the collapses major crypto firms including Celsius Network and Voyager Digital. During this debacle, bitcoin prices were halved and investors and businesses were forced to quickly pay off the debt they had borrowed against their tokens or businesses.
Because of this, in the case of FTX, “the hit to crypto market capitalization will likely be smaller” than the pain at the start of the year, JPMorgan analysts said in a recent note.
Despite all this, investors should remain cautious. It is unclear which other crypto firms will be caught up in FTX’s collapse. Some offshore crypto exchanges, for example, have seen large pullbacks, despite assuring clients that they are not engaging in the practices that led to FTX’s downfall.
Additionally, FTX and its sister company Alameda Research supported other industry players themselves. With that aid removed, analysts expect more companies to offload digital assets in discount sales to raise cash, lest they go bankrupt themselves.
The recent price action also makes the token technically weak. Bitcoin is now trading below a significant technical support level of $18,300, according to Katie Stockton, managing partner of technical research firm Fairlead Strategies, which could indicate that prices will fall further.
Crypto rallies tend to happen quickly, Ouellette notes. This means that anyone waiting for an “all clear” signal could be missing out on huge gains.
But for now, taking this risk is not worth it. There’s no way to go bargain hunting when the market is this fragile.
Write to Joe Light at joe.light@barrons.com