Sophia’s Thoughts On The Newest Crypto Bull Run
The crypto market has been pumping over the last few weeks. What’s behind this latest bull run?
These are Sophia's Thoughts:
The crypto market gained 11% over the last 2 weeks, with Bitcoin pushing past USD 44,000 before retracting to USD 41,000.
Part of the rally has been driven by what appears to be improving fundamentals: the expected approval of a spot Bitcoin ETF in the new year will likely bring renewed institutional interest to crypto.
But, more than anything, it has been the strong sentiment by investors that pushed the crypto market to a new 20-month high. People are feeling good about crypto again and their trading like they mean it.
Even though there was a 6% correction yesterday, we foresee that the crypto market will soon again retake its bull run.
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🚀 Last week’s market performance
Bitcoin (BTC) lost 1.8% last week while the crypto market flatlined. One of the biggest winners of the week was Avalanche (AVAX). It gained 68.2% after positive news about its user base. The biggest loser of the week was Terra Classic (LUNC). It partially corrected a 2-week streak that had pushed the token 70% up. More on these two tokens below.
🧐 What is your crypto mood today?
In each Sophia's Thoughts newsletter, we ask about your crypto mood. Your response to this question helps Sophia get a better sense of the pulse of crypto markets. And this ultimately translates into better insights for you when combined with Sophia's AI models. Your data empowers Sophia to provide you with even better intelligence going forward!
📈 The New Rally
We took a break last week when the team was on an offsite. But the crypto market certainly did not sleep. 2023 is sure to end on a high note for crypto.
In the last two weeks, Bitcoin (BTC) jumped from USD 37,250 to almost USD 45,000. It stayed at around USD 44,000 until yesterday. Then, the crypto market saw a huge correction. Bitcoin lost 6% in a few hours. Still, Bitcoin opened today above USD 41,000 and continues to hover around this level. This is the highest level Bitcoin has traded at since April 2022.
Bitcoin was not the only coin that rallied lately. Several altcoins have also seen huge gains. The top five performing coins of the last two weeks were:
BitTorrent (BTT), which gained almost 200% after news that the Tron network (on which BTT is issued) reached 200 million users.
Avalanche (AVAX) gained 87% after it saw increases in the Total Value Lock (TLV) within the ecosystem.
Terra Classic (LUNC) gained 73% after billions of LUNC tokens were recently burned as part of the algorithm management of LUNC liquidity.
Algorand (ALGO) gained 54% after the United Nations partnered with Algorand to launch a blockchain academy.
Immutable (IMX) gained 53% after investment company VanEck expressed bullish sentiment for IMX.
These coins gained more than five-times as much as the broader crypto market. Several other coins also boomed, including Cardano (ADA) which gained 45% lifted by strong sentiment.
👌 An Improvement in Fundamentals
Sophia had been mostly bullish on coins over the last two weeks. The bullish mood for Sophia was bolstered by what Sophia perceived as improving fundamentals combined with strong sentiment on social chatters. Let’s look into the crypto fundamentals first.
The boost in fundamentals came after a series of backdoor developments around the approval of a spot Bitcoin ETF. The approval of a spot Bitcoin ETF has been hyped as a game changer for crypto. That’s because, when a spot ETF is finally approved, it will open the floodgates for institutional money to flow into crypto. This is harder to occur now because many institutions have restrictions on where they can trade and what positions they can hold. Crypto that is traded on unregulated exchanges is often off-limits for such institutions. If a spot Bitcoin ETF were to be approved, then the ETF could be listed on a regulated exchange and distributed through regulated brokers. That would enable institutions to gain exposure to crypto in a compliant way.
The latest round of deadlines for the approval of several submissions that have been made to the SEC to run spot Bitcoin ETFs lapsed at the end of November. Now, the next round of deadlines are due early in January. While January is not the last possible deadline for a spot Bitcoin ETF to be approved, the market received several signals that the SEC is indeed gearing up to take such a step soon.
First, the SEC met with BlackRock to discuss its spot Bitcoin ETF application. Then, the SEC met with Grayscale to discuss the conversion of its Bitcoin Trust into a spot ETF. The SEC has since also met with Fidelity and initiated the comment period for Franklin Templeton’s application earlier than expected. These meetings have led to revisions in the existing spot Bitcoin ETF applications. In response to SEC comments, BlackRock changed its proposed approach for how to handle redemptions — that is, what to do when an investor in the spot Bitcoin ETF wants to convert its shares into corresponding holdings of Bitcoin. This is an important mechanism that ensures that the price of a spot ETF is almost exactly equal to the value of the securities that the ETF holds. Furthermore, we have since also seen advertising platforms like Google adjust its policies to allow for the advertisement of regulated crypto financial products.
All in one, the market got several positive signals that a spot Bitcoin ETF may be approved sooner than later. This is a strong boost in the fundamentals of cryptocurrencies. The rally we’re seeing now is partially reflecting some of these positive fundamental developments.
🗣️ The Sentiment Boost
Sophia has been bullish on crypto lately also because investors are feeling good about crypto. And they are trading like they mean it!
Our proprietary measures of sentiment for the crypto market and individual coins have ticked up over the last two weeks. People are expressing more and more positive opinions about crypto in social chatter and online news. And this is benefitting crypto valuations, according to Sophia’s intelligence.
The way this has been manifesting is through increased buying volumes. According to data from CoinMarketCap, trading volumes have increased globally. On November 28, we were seeing USD 50 billion in 24-hour global trading volume. Now, we are seeing USD 80 billion in daily trading volumes globally. That’s a 60% increase in trading activity.
We have also seen a net inflow of funds into the crypto market. According to a report by CoinShares, crypto investment products have seen more than USD 1.7 billion flow into them over the last 10 weeks. That’s the best inflow streak since October 2021. Such strong buying pressures have pushed the crypto market up. The global crypto market capitalization surged above USD 1.5 trillion for the first time since May 2022.
Investors are feeling good about the crypto market. And this is showcased in the current crypto rally. But Sophia’s intelligence does not seem to suggest that the crypto market is too overheated yet. Sophia’s sentiment boost score indicates that crypto valuations are currently benefiting from the strong sentiment in the market.
🙋🏻♂️ What’s next?
The market took a little dip over the last 2 days. At first on Monday, the crypto market retracted and lost almost 6%. Then, today, news came out that inflation in the US has declined less than expected in the last month. This triggered another smaller correction as it stoked fears that the Fed may not begin to cut rates soon enough. Still, we continue to be of the mindset that improving fundamentals and strong sentiment are providing solid ground for a new crypto rally over the next few months. Especially in light of the upcoming Bitcoin halving in the spring, which has traditionally been a bullish event for crypto.
Nonetheless, it is important for investors to consider all possible risks when making decisions in crypto. If the SEC does decide to delay its spot Bitcoin ETF decision past January, we may see another correction due to crushed expectations. That may dampen the impact of fundamentals. And if the SEC or the Justice Department suddenly trigger new enforcement actions against crypto participants, that may dampen the recent sentiment euphoria. Investing always involves risks. So it’s important to understand the trade-offs between risk and reward.
Timing the market is difficult. But Indicia Labs’s Sophia and Pallas products are here to help. Try IL Pro, Indicia’s premium subscription service, to stay up-to-date on the latest crypto intelligence. Use the offer code SophiasThoughts when you sign up for a monthly membership and get your first month off.
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