News
01
Feb

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Market overview 2/1: cryptocurrencies finally on the rise

Bitcoin’s price has found a bottom. That’s how it looks like in the short term at least. Altcoins have also started to move up in the past few days. Smart contract platforms are dragging the market higher with NFT-related coins. The DeFi sector has been relatively silent, though.

Has Bitcoin found a bottom?

Bitcoin’s price is $38.500 at the time of writing this article. It was just $36.300 a week ago. This means Bitcoin is finally moving higher. We have had the first positive week in the markets for a long time.

The graph below shows Bitcoin’s price development and the 50-day (blue) and the 200-day (purple) moving averages. One candle represents one day.

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The mood of crypto investors has risen significantly because eight out of the previous nine daily candles are green. It looks like the $33.000 price we saw on the 24th of January was the bottom of this downtrend.

Bitcoin also survived the stress test of Jerome Powell last week. The Fed chairman had his much-awaited speech on Wednesday evening. Powell’s every word was carefully listened to by economists and traders all around the world. You can watch the entire speech from the video below (22:00).

Powell eventually kept his cool and expressed Fed’s intention to stick to the previously articulated plan. Fed is going to taper asset purchases and raise rates in March. This scared the markets at first, but the week ended strongly in green color.

It’s very much possible that the market starts a multi-week uptrend from here. Even if that happens it doesn’t mean the danger is over. It’s just one month until we are in March and rate increases arrive. The U.S. economic data looks also worrying.

In fact, it is looking increasingly likely that the Fed is going to raise rates to weak economic conditions. This would be the worst possible thing to do. Hence, we could see the second part of the market collapse in late March.

This matters because the crypto market is highly correlated with the U.S. stock market. At least, in the short term. Investors are also more uncertain than ever of the macro trends in Bitcoin.

The popular theory of four-year halving cycles was destroyed in 2021. The market is now searching for new theories and models. There are lengthening cycles and shortening bull & bear markets, but no commonly accepted theory exists yet. When we add Fed’s monetary policy into the mix, it becomes quite messy.

Crypto investors are due for a breather. It’s been tough two and a half months. Even if the market looks green, we urge all investors to stay cautious. Bitcoin is just showing signs of waking up. There are lots of hurdles ahead before we could confirm a new bull market. Not to mention the upcoming Fed actions in just six weeks.

We are becoming increasingly positive and expecting a relief rally in February. However, there is no evidence of a new bull market yet. Bitcoin’s price is also far below the 50-day and 200-day moving averages.

Bitcoin’s dominance hasn’t moved

Bitcoin’s market share is currently 42.16 percent. The number was 42.4 percent a week ago. This means there haven’t been any significant changes.

Altcoins were really sinking between January 16th and January 28th. Bitcoin’s dominance moved four percentage points higher during this time. Now, altcoins have started to gain back the lost ground.

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It looks like Bitcoin’s dominance didn’t really move higher until the market was in full panic. When we look at the big picture, Bitcoin has actually lost market share since early November. Of course, the fact that stablecoins are counted as altcoins has a big influence here.

When we compared individual altcoins to Bitcoin, we can see clear downtrends for altcoins. It is obvious, though, that altcoins aren’t crashing the same way they did in past years. When the market shows any signs of improvement, altcoins will also quickly gain any lost ground.

Smart contract platforms are pulling the altcoin market higher

Last week was nothing short of horrible for altcoins. There wasn’t a single coin on the top 100 ranking list with a positive performance against USD in seven days. The tide has now turned. Practically every cryptocurrency has gone up in price during the past week. Many altcoins have also outperformed Bitcoin.

Below is the current cryptocurrency top 15 ranking and the price development against Bitcoin.

altit-010222

There are five large altcoins showing green against Bitcoin: Ethereum, Solana, Polkadot, Avalanche, and Polygon. All these are smart contract platforms. This sector was immensely popular in 2021, so it’s not a surprise these coins are pulling the market higher.

One should also notice that UST, the stablecoin by Terra, is now ranked 16th. It could be that we have soon four stablecoins in the top 15 rankings.

When we go down in rankings there are three coins that stand out. The Sandbox (+36% vs. USD), Decentraland (+35%) and Flow (+45%) are the best-performing top 50 coins. They are all connected to the NFT sector.

The Flow blockchain is getting a boost from the recently launched UFC Strike. This is the official NFT marketplace for UFC we mentioned already a week ago. The Sandbox has partnered with the Warner Music Group, which brings for example live concerts to the Sandbox metaverse.

The entire altcoin market looks very positive compared to last week. Time will tell if this leads to a longer uptrend. Altcoins move in the same general direction as Bitcoin, which in turn, moves in the same general direction as the stock market. Everything is linked together at the moment.

The DeFi sector has remained unchanged

The liquidity of the DeFi markets went down last week with the rest of the market. We witnessed a crash of $35 billion dollars in TVL. This was one of the biggest downfalls ever. The DeFi industry hasn’t recovered from the crash like the rest of the crypto market. The TVL is still at the same level as it was a week ago.

Today’s number is 194.4 billion dollars. The TVL was 195.84 billion dollars a week ago. Even if we are far from the all-time highs of 2021, these numbers are still extraordinary when compared to February 2021. The TVL is now over 500 percent higher it was a year ago.

All charts are from Defillama.

defitvl-010222

There were several changes at the protocol level a week ago. This time the top 10 rankings have remained unchanged. Curve is still at the pole position, but even this protocol has lost a lot of TVL from its all-time high. MakerDAO has kept the second place it gained last week.

defiapps-010222

MakerDAO hasn’t suffered because of the drama we witnessed last week. Maker was about to liquidate 600 million dollars worth of ETH due to a large loan that was losing its collateral. The reason for this was the crash in Ether’s dollar price.

The 600 million liquidations were barely avoided. Maker sold just 65 million dollars worth of ETH before the loan takers deposited in more collateral.

Had this liquidation happened, it could have driven Ethereum far lower. This isn’t the only bad thing. Maker might not have been able to get enough USD back from the market if the order books got too thin. This could have caused a loss to the protocol. A similar event happened in the crash of March 2020.

Let’s look at the blockchain rankings next.

defichains-010222

There haven’t been any significant changes on this ranking list. Last week we were in a situation where Fantom was just about to overtake Binance Smart Chain. This battle is over for now since Fantom has lost more TVL than any other top blockchain.

You should also note that Defillama has changed the way blockchains are listed. All sub-chains or Layer 2s are now listed under the main chain and the TVL of all these chains is summed up. For example, Ethereum includes Arbitrum, Optimism, zkSync, etc. Polkadot has also made it to the top 10 for the first time!

Terra Luna has also lost liquidity. The reason is the Wonderland drama, which has caused investors to panic about the dollar-peg of the UST stablecoin. You can read more about the incident from here.

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