Bitcoin reclaims $16,000 but FTX jitters haunt crypto markets – Cryptocurrency News



On Tuesday, Bitcoin bounced off its two-year low, hinting that the capitulation might have temporarily paused as the king of cryptocurrencies has been trading within the oversold territory for around two weeks. This rebound has been mostly attributed to ‘buy the dip’ strategies, with investors still being concerned about the health and robustness of the broader crypto ecosystem following FTX’s collapse. In the face of a complete market meltdown, investors are urging governments to tighten regulations. Could this rescue cryptos?

Domino effect

FTX’s failure has sent shockwaves across the crypto universe, causing cascading blow-ups of several crypto-related companies. The latest victim of FTX’s fallout was Digital Currency Group (DCG), which is the mother company of Genesis Global and Grayscale Bitcoin Trust. The former, which is a crypto trading and lending firm, halted customer withdrawals last weekend, citing unprecedented damage due to the latest market turmoil. In addition, the latter is currently trading at around 50% of its digital coin holdings’ value, while it has fallen more than Bitcoin during the past week.

Reports suggest that Genesis has been actively seeking funding from Binance and Apollo Global Management. If Genesis fails to acquire the needed funding, this could trigger another collapse in the crypto space which would deteriorate the already gloomy picture. It is interesting that even though cryptocurrencies have promoted the idea of decentralisation, most crypto companies appear to have significant exposure to each other. Therefore, that makes it almost impossible to determine when and where the contagion of FTX’s bankruptcy would end as it seems to have triggered a wave of impending collapses.

Vicious Circle

During the past month, crypto markets have been facing a liquidity crunch. On the one hand, the collapse of multiple crypto exchanges has dented investor sentiment and led many crypto traders to redeem their positions and exit the crypto space. On the other hand, the remaining market makers have become more conservative by raising their spreads in order to manage increasing risks. But how does low liquidity affect the latest market crash?

Crypto investors are more likely to use leverage than traditional asset investors as cryptocurrencies are a highly risky investment in the first place. This period of thin liquidity has exacerbated the latest crypto sell-off, with the liquidation of leveraged positions causing huge downward spikes due to the absence of buyers. This theme was also evident throughout the year as most significant declines occurred over the weekends. Hence, if more and more crypto firms continue to get out of business, investors will increasingly tilt away from crypto markets and the vicious circle will resume.

Calls for regulation multiply

Many market participants are blaming the lack of strict regulations for the turmoil in crypto markets. Lately, some US senators have renewed their calls for Fidelity investments to reconsider its Bitcoin-linked retirement product offering due to the latest bankruptcy events in the digital asset industry. Moreover, another group of US senators has urged several bank regulators to examine whether SoFi, the online personal finance and bank services company, is licensed to sell crypto products to investors.

Even though a globally approved regulatory framework for cryptocurrencies currently seems like a far-fetched dream, it could be a decisive factor to massively reduce uncertainty in the broader crypto universe. It is clear that the ongoing wave of defaults should stop before investors’ trust in crypto markets returns and regulatory actions appear to be the initial step towards that direction.

Recovery or dead cat bounce?

BTCUSD has bounced from its two-year low of 15,480 but risks remain tilted to the downside as long as FTX’s fallout is not fully contained. Nevertheless, some investors seem to be finding the current levels as a good opportunity for some dip buying.

Should the broader downfall continue, the price could descend to test the 2022 low of 15,480. Even lower, the August 2020 resistance of 12,490 could prove to be the next barrier for the price.

On the flipside, bullish actions may encounter initial resistance at 17,200 before the 20,000 psychological mark appears on the radar.

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