Crypto Ecosystem

Weekly Crypto Highlights: Did Chinese New Year week push the market up?

, January 26, 2023

This weekly piece of cryptocurrency price analysis and thought leadership is brought to you by the expert team at CEX.IO, your crypto guide since 2013. At CEX.IO, we’re committed to providing the latest industry developments and potential price scenarios to help our users make the most informed decisions along their crypto journeys.

In this week’s update, we explore the price movements of BTC, AXS, FTM, and ATOM. Additionally, this recap includes other notable market news over the last seven days.

Read along for in-depth breakdowns, and enjoy reviews of correlated markets.

Notable market events

Genesis filed for bankruptcy protection

On January 18, Bloomberg reported the cryptocurrency lending unit of Digital Currency Group (DCG), Genesis, preparedthe groundwork for a bankruptcy filing. Two days after that, Genesis filed for Chapter 11 bankruptcy protection in New York.

According to bankruptcy court documents, Genesis claimed to have $5.1 billion in liabilities, and estimated more than 100,000 creditors. Genesis owes over $3.5 billion to its top 50 creditors, among which include crypto exchange Gemini, Cumberland, Mirana, MoonAlpha Finance, and VanEck’s New Finance Income Fund. In addition, DCG reiterated that it owes Genesis roughly $526 million due in May 2023, and $1.1 billion via a promissory note due in June 2032.

Genesis creditors are optimistic that they will soon reach a consensus with the lender to reimburse $3.5 billion in frozen funds. Furthermore, Genesis lawyer Sean O’Neal expects the company to exit bankruptcy by mid-May 2023.

Notably, the event didn’t harm the crypto market. It is widely considered that the likelihood of Genesis’ bankruptcy was priced in due to extensive attention to the company over the last three months. Still, there are concerns that Genesis’ bankruptcy may potentially affect Grayscale and its crypto trust funds as DCG could look for extra cash. Grayscale is also owned by DCG.

Could DCG liquidate Grayscale assets?

DCG is not allowed to sell more than 1% of its trust funds shares per quarter, due to security regulations. Moreover, any selling would widen the discount, reducing how much cash the company could raise with its sales. At the moment of this writing, Grayscale’s Bitcoin trust fund (GBTC) and Ethereum trust fund (ETHE) discounts are more than 40% and 45%, respectively.

A potential way for DCG to capture the full value of its Grayscale positions is to liquidate GBTC, and/or its other crypto trust funds. However, GBTC and ETHE charge shareholders 2% and 2.5%, annually, respectively. According to Morningstar Research, investors have paid an estimated $1.2 billion for GBTC and $387 million for ETHE cumulatively, over the lifetime of both of those products.

This means Grayscale’s trust funds could be more valuable as cash flow generators, especially when a liquidation may plummet the prices of underlying assets. Liquidations could mean that DCG has significant liquidity issues.

Bitzlato shut down, and the platform’s leadership was arrested

On January 18, crypto exchange Bitzlato informed in its Telegram channel that it was hacked, and will shut down its services. The same day, the U.S. Justice Department announced the capture of the platform’s founder, Anatoly Legkodymov. He was arrested in Miami for running illegal operations. The Federal Bureau of Investigation (FBI), Europol, and the U.S. Treasury Department were also involved in the Bitzlato case.

According to Justice Department officials, Bitzlato was one of the largest crypto crime exchanges. It offered peer-to-peer services and hosted wallets of criminals buying and selling illegal goods. Notably, there was no know your customer (KYC) information needed in order to trade on the exchange.

The Treasury’s Financial Crimes Enforcement Network (FinCEN) labeled the company a “primary money-laundering concern,” which is among the most serious sanctions in the government’s criminal-fighting arsenal. This designation usually cuts off a business from the global financial system. FinCEN also said that Bitzlato played a key role in handling illicit transactions for ransomware actors and drug trafficking in Russia.

On January 23, Europol announced the arrest of the CEO, CFO, and CMO of Bitzlato in Spain, stating that almost half of all Bitzlato transactions were linked to criminal activities.

This story highlights why commitment to regulations, and adopting proper KYC practices, is crucial to providing a secure environment for crypto enthusiasts.

Vitalik Buterin proposed stealth addresses to increase privacy on Ethereum

Ethereum co-founder Vitalik Buterin suggested stealth addresses as a solution to potentially guarantee privacy on blockchain transactions. They are generated by wallets and muddle public key addresses in order to transact privately. To access these transactions, one must use a special key called the “spending key.”

Stealth addresses would provide a mechanism to also add privacy protections to non-fungible tokens (NFT), and Ethereum Name Service (ENS) domain names.

Some crypto enthusiasts supported Buterin’s idea, while others shared certain fears about stealth addresses, pointing out that they cannot be reused.

EU about to vote on capital requirements for banks holding crypto

The European Union is concluding legislation development on implementing the Basel III accords, which set global capital requirements. The prospective legislation would require banks to back their crypto holdings with 1,250% collateral. In adherence to Basel Committee suggestions, this prohibitively high amount is meant to cover a complete loss in asset value. The Committee on Economic and Monetary Affairs of the European Parliament will vote on a draft law later this week.

These bank requirements are separate from the EU’s comprehensive legislation on cryptocurrency, Markets in Crypto Assets (MiCA).

Other major news

  • The Internal Revenue Service (IRS) updated reporting requirements for transactions with cryptocurrencies. U.S. residents are now required to report on digital assets received from mining and staking.
  • The first Cardano-based stablecoin Djed is scheduled to be released next week. Djed is expected to go live on over 40 Cardano-based decentralized finance applications (dApps) on launch.
  • Ethereum developers successfully deployed the first mainnet shadow fork in preparation for the Shanghai upgrade. This upgrade is due in March, and will allow validators to unstake their ETH.
  • The U.S. Securities and Exchange Commission (SEC) charged crypto lender Nexo with failing to register the offer and sale of its Earn service. Nexo has agreed to pay a $22.5 million fine to the SEC, and another $22.5 million to settle similar charges by state regulators.

BTC moved above $23,000 before the Chinese New Year week

Chinese New Year took place on January 22, 2023, marking the beginning of a week-long national holiday in China, also known as “golden week.” This period is typically accompanied by high volatility and lower volume in the crypto market. Bitcoin price has shown positive performance over the last eight years during Chinese New Year week. In some cases, the asset experienced upward movement shortly before it.

However, Bitcoin may lose almost all of its gains following the holiday. For example, in 2021 and 2022, the asset showed increased volatility during the “golden week” (purple rectangles). But then, its price dropped to its initial levels.

Although the uptrend may be reestablished after this drop, it can’t be decisively stated that  Chinese New Year week has a long-lasting effect on price.

This January, Bitcoin jumped from $16,400 to $23,000 before Chinese New Year. Potentially, it may act as one of the catalysts to drive the price upward further. The next target for the bulls could be near $25,000 (green line), where 200-week MA is also located.

However, the asset reached the overbought zone on lower timeframes, and formed a strong bearish divergence (white lines). This means that a price correction may occur soon. The closest support level could be near $21,500. In case of prolonged consolidation, the “golden week” may end up showing negative performance.

AXS surged ahead of the token unlock

The AXS price jumped by over 40% before the unlock of 4.8 million AXS tokens, which took place on Monday. Unlocks are considered bearish catalysts, so the community feared that the bulls could do an exit pump. After the event, the price moved down by over 15%.

The Stochastic indicator on the four-hour chart touched the oversold zone, hinting that correction could be complete near 0.382 Fibonacci level, or $10.8. However, the asset may need to sustain above $12 to show signs that bullish momentum is still in place. A breakout of the $14 resistance level could push the price to $16.

If the price drops below the 0.5 Fibonacci level, or $9.9, this may increase the bearish pressure, and move the price to $7.5.

FTM is on the verge of a golden cross

The FTM price experienced a 40% increase in a week, becoming one of the top performers. The potential catalyst could be the Ecosystem Vault release. It aims to fund projects and applications built on Fantom’s blockchain. The project is financed by 10% of the transaction fees on Fantom, and is controlled by the community. The initiative was made possible by decreasing the burn rate of FTM tokens, and redirecting the resulting 10% to the vault.

As a result of this rally, the asset moved above the local high of $0.41. If the price sustains above this level, bulls may push it to the $0.45-$0.5 resistance area (green channel). Golden cross appearance may help buyers maintain bullish momentum. The golden cross occurs when the 50-day MA (cyan line) crosses above the 200-day MA (blue line), and is considered a bullish signal.

However, the asset is trading in the overbought zone, and formed a strong bearish divergence (white lines). This means the asset may experience a retest of the $0.36 support level, or potential correction to $0.3.

ATOM is testing descending resistance line

After a rebound from the $11.4 level (orange line), the ATOM price approached the descending resistance line (blue line). A potential driver of the upward movement could be the announcement of the Prism v2 airdrop, and the project’s imminent release. Snapshots will be taken weekly, having commenced on January 19, 2023. A weighted average of balances from the weekly snapshots will be used to determine the airdrop amount, which will be claimable after the mainnet launch.

If the asset breaks a descending line, the next potential target for the bulls could be the $15.2-$15.7 area (green channel). But like many other assets, recent ATOM performance moved it to the overbought zone, and formed a bearish divergence (white lines). This means that price correction may take place soon.

The 20-day EMA continues to act as a dynamic support level for the price. Its breakout could return the asset to $11.4.

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Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

Disclaimer: Not investment advice. Seek professional advice. Digital assets involve risk. Do your own research.

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