Cryptos: “It’s too early for the market to go up!”

Children of finance. Luna, Celsius, FTX, probably Genesis… Despite the crises, crypto investors show unwavering optimism. After sinking in the wake of these scandals, Bitcoin started to rise again, crossing the $20,000 mark in January. Ethereum is currently trading at just over $1,500 (€1,400).

Observers in other sectors welcomed such firmness with both hands. But with cryptocurrencies, things are definitely more complicated.

Winter is not over

It is too early for the market to rise, IG analyst Vincent Boy warns. We need other downturns and other liquidity crises to clean it up. Actors who are too weak and do not act in the interests of investors should be eliminated“. Understand: both knees must be on the ground for a healthy market recovery.

The risk of relapse is real because not all the bad apples have been removed from the basket. Like the founders of Three Arrows Capital, who are about to launch a new platform six months after placing their funds… And manage to convince investors! Point out that the actors struggle to learn from their mistakes.

However, while crypto-believers are able to identify and avoid lame ducks, this is not the case for all investors, especially newcomers, which are increasingly common. “We see an increase in the number of digital addresses with at least 1 bitcoin and a decrease in the number of addresses with at least 1000 bitcoins. Vincent comforts the Boy.

The graph below illustrates this dynamic. Large bitcoin holdings have been in near-constant decline since last July, with a notable acceleration in late October. Note that there may be several investors behind one address.

Number of addresses with more than 1000 bitcoins

Source: IG France

In other words, “whales” (whales), investors who have gained some influence by holding a large amount in the bitcoin market, continue to sell it to smaller ones, rather than collecting new ones. Thus, they expect the price to decline further before a sustained rise. On the contrary, small investors are trying to find a place in the market before it rises again.

More volatility is coming to Ethereum

In turn, the second cryptocurrency on the Ethereum market is about to experience a second update in March. Called Shanghai, it should allow for the release of about 16 million ethers. To understand how and why, we have to go back to last September and the first update of the ethereum blockchain, The Merge. He changed his protocol, transferred it Proof of work (PoW, proof of work), requires at least energy Proof of Stake (PoS, Proof of Stake).

PoW uses very powerful computers to solve mathematical problems. All compete and are rewarded with cryptos. As the equations become more complex, computers must work harder and therefore consume more energy, so the environmental footprint of this system is criticized. There should be validators with PoS stacker (play) 32 ethers to be able to confirm transactions on the Blockchain. They no longer compete against each other, but are randomly selected from among volunteers. Although The Merge only went live in September, it was already available to the community stacker its ethers to participate in the evolution of ethereum. Problem: The Braves still haven’t gotten their badge back.

Shanghai therefore needs to solve this problem. It is estimated that there are more than 496,000 validators to date distributed about 16 million ether, equal to about $24 billion. A nice little amount. Especially since back then the cost of an ether was just $600 versus just over $1,500 today. Hence the concerns of some commentators who expect significant sales from these early investors.

Vincent Boy is expecting a period of volatility after the operation. “On the other hand, once doubts are cleared, investors should take advantage of it staking and especially by use twistmakes the business less risky, which may lead to ether outperforming bitcoin“, he concludes.

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