Bitcoin and top market cap altcoins followed the equity market patterns, especially the S&P 500 and meaning fighting hard to keep themselves in the positive spectrum. In fact, as analysts from eToro point out, investors should start to forget about bitcoin being compared to gold as bitcoin is increasingly correlated to the S&P 500.
Comments By Simon Peters and David Derhy, analysts, eToro
Bitcoin’s on-chain metrics are a broken record playing a pleasing tune
Much has been said on the important and increasing correlation between bitcoin and gold. But data also shows that bitcoin is increasingly correlated to the S&P 500, an index often regarded as an indicator of wider equity markets due to the size of some of its constituents (the FAANGs in particular). Perhaps such a correlation is indicative of a step towards a new level of maturity, driven by institutional investment?
Cryptoasset data firm Glassnode highlighted some more positive on-chain fundamentals for bitcoin, all of which increased over the past week. The metrics of network health, liquidity and sentiment all made positive moves as network activity increased, trading and transaction liquidity improved, and sentiment rose following early bitcoin gains.
Now, combine these positive metrics with a backdrop of continued central bank stimulus designed to keep economies afloat and the Federal Reserve’s new inflation policy and you have a whole host of factors that should be driving a bitcoin bull market. Yet social media chatter is bearish, and investors are pessimistic on traditional markets, which could be feeding through to crypto.
But a positive to be taken is that $10,000 continues to be a floor that the cryptoasset is not willing to dip beneath.
Positivity should exist in the altcoin community, too
While we are in a very strong position, in much the same way as we were before the 2017 bull run, there are still teething issues in various parts of the sector that are creating rifts.
Some of the bearish sentiment in some parts of the crypto sector already mentioned has no doubt come about off the back of certain controversial developments in the DeFi space. A number of the new tokens being issued are foolish and intrinsically worthless yet see massive price rises as they snowball. Add in the huge success of Uniswap, the quite bizarre story of SushiSwap, and the tasty story of Yam (pun intended), and crypto twitter is right to be up in arms about the potential damage that such projects could be doing to the sector.
Nevertheless, there are still ample opportunities in the altcoin sector, with the value locked in DeFi projects now standing at over $10 billion. Developments and announcements are becoming a regular occurrence in these projects, as investors and participants alike continue to recognise the potential of some of these protocols.
Quarter of insti investors itching to enter cryptoassets
Research from Evertas shows that 26% of institutional investors, including pension funds, are looking to increase their level of investment in cryptoassets by 2025. Whilst this might not provide extensive additional liquidity – as market cap for cryptoassets is currently easily dwarfed by any one of the major tech companies – it does show an important willingness from institutional investors to enter the asset class. It’s important to note that there are already a number of companies with indirect exposure to cryptoassets, whether that be through investment in blockchain companies or MicroStrategy’s own additions and allocations. Should we get a raft of CBDCs entering the market, then this could provide a base for more institutional investment into the cryptoasset sector.
In addition to this positivity from institutional investors, there remains time for another bitcoin bull run this year. Banks in the US can now hold reserve funds for fiat-backed stablecoin issuers. And stablecoins are catching the eye of other regulators, too, such as the Bank of England’s Andrew Bailey. Even with the nervous chatter, we are in a good place right now.
Tokenised bitcoin positive for the sector, just not the maximalists
Last week CoinDesk reported that tokenised bitcoin on the Ethereum platform now tops $1.1bn. Tokenised bitcoin has been a key beneficiary of the DeFi boom, providing important liquidity for decentralised exchanges such as Uniswap.
Bitcoin maximalists would decry the use of bitcoin on Ethereum, arguing that it isn’t ‘real’ bitcoin – an interesting point to make about a currency that is quite literally virtual. I don’t take that view and, as a general cryptoasset enthusiast, I view this development as positive for the sector, as it highlights an evolution within the industry.