Cooling U.S. inflation may not stop bitcoin from sliding to $10,000. Here’s why

U.S. inflation has cooled down in December as expected, while in the crypto space, the fallout from crypto exchange FTX’s bankruptcy is ongoing. With all this going on, I caught up with Joel Kruger, strategist at LMAX Group, who thinks bitcoin
BTCUSD,
+0.14%
may further slide to $10,000, but could reach $50,000 by the end of the year.

Bitcoin in 2023

U.S. inflation cooled down in December, again. The cost of living fell 0.1% in December, posting the first decline in two and a half years. That combined with prior months’ below-forecast inflation readings gave Wall Street hope that the Federal Reserve may soon end its interest rate hikes without sending the economy into a recession. 

The decline in inflation, a fall in Treasury yields since last November and low unemployment has helped the prices of risky assets to get off to a good start for the year, though the Fed has signaled it plans to raise its policy interest rate several more times this year. The Nasdaq Composite gained more than 5% year-to-date and bitcoin rose over 9% over the same period. 

Still, for crypto, the worst may not be over yet, as the contagion from the bankruptcy of crypto exchange FTX continues to spread, analysts said.

Short-term technical analysis points to potential further declines of bitcoin prices, before reaching a bottom, according to LMAX’s Kruger. Bitcoin fell below $17,600 in November, which opens the pathway for the next slide to $10,000, noted Kruger. 

A combination of the risk-off macro environment, more contagion from FTX’s collapse and concerns around a regulatory crackdown could all contribute to the next wave of downside pressure, Kruger said. Still, a drop below $10,000 is likely to be short-lived, noted Kruger. Once the price recovery of risk assets sets off, bitcoin may rise back above $50,000 by the end of the year, said Kruger. 

Stefan Rust, chief executive at Laguna Labs, echoed the point. “I think towards the summer, once we start seeing a flattening out of the interest rates, we will see a recovery come,” said Rust. 

“I think we will learn to live with 5.5% interest from the Fed for the next couple of months. And once we’ve hit that plateau, and the guessing game has ended, we will start to recover,” according to Rust. 

SBF and FTX 

Meanwhile, Sam Bankman-Fried, co-founder and former chief executive of FTX, is back online, reviving his defense via a new public forum, while under house arrest at his parents’ home in California. 

Bankman-Fried on Thursday launched a channel on SubStack, a platform that supports subscription newsletters. In a blog titled “FTX Pre-Mortem Overview” on Thursday, Bankman-Fried wrote that “I didn’t steal funds,” reiterating his previous arguments while posting more details. I’ve written more about it here.

Meanwhile, more progress is made on FTX’s bankruptcy case. The company has recovered over $5 billion in assets, including cash, liquid crypto and liquid investment securities, Andy Dietderich, an attorney for FTX told a Delaware judge on Wednesday. It is unclear what will happen to the $5 billion, or any financial assets it recovers in the future. 

See: FTX says it’s recovered $5 billion in assets as the embattled crypto giant navigates bankruptcy process

It also remains unclear how many customer funds are missing, according to Dietderich. The U.S. Commodities Futures Trading Commission has estimated the number to be more than $8 billion, according to a Reuters report. 

What’s more, billionaire investor Peter Thiel, NFL quarterback Tom Brady, and investor and TV personality Kevin O’Leary were among shareholders named in a recent bankruptcy court document filed in connection with FTX. 

It is the first time that Peter Thiel has been linked to the crypto exchange publicly. His family trust office Rivendell Trust and venture-capital arm Thiel Capital were both listed in the filing under the name 2021-015 Investments LL, which received 245,000 shares from West Realm Shires Inc., an FTX affiliate, and a combined value of 57,230 from FTX Trading.

In other FTX-related news, a federal judge on Wednesday terminated the naming-rights deal between the crypto exchange and Miami-Dade County. It means that the Miami Heat basketball team’s home arena can now officially remove FTX from its name. Check out Anushree Dave’s coverage here.

DCG vs. Gemini

Crypto exchange Gemini’s cofounder Cameron Winklevoss on Tuesday called for the removal of Digital Currency Group’s chief executive Barry Silbert, amid tension between the two companies, in the aftermath of FTX’s collapse.

Some users of Gemini’s Earn program, who lent out their crypto through DCG’s subsidiary Genesis to earn interests, have been unable to access a total of more than $900 million in funds, according to several media reports. Genesis’s lending arm has ceased redemptions since November, as the contagion of FTX’s bankruptcy spread.

Winklevoss said Gemini and its more than 340,000 Earn users have been “defrauded” by Genesis and DCG, in a letter to the board of DCG published on Twitter Tuesday. 

In response, a DCG spokesperson wrote to MarketWatch that “this is another desperate and unconstructive publicity stunt from Cameron Winklevoss to deflect blame from himself and Gemini, who are solely responsible for operating Gemini Earn and marketing the program to its customers.”

Crypto in a snap

Bitcoin prices rose 8% during the past week, and was trading at around $18,771 on Thursday, according to CoinDesk data.

Ether
ETHUSD,
-1.15%
 was up 12% over the same stretch to around $1,429, CoinDesk data shows.

Crypto companies, funds

Shares of Coinbase Global Inc.
COIN,
+8.59%
rallied 34.6% for the week to around $45.09. MicroStrategy Inc.
MSTR,
+7.91%
rose by 29%, to $201.43, thus far on the week.

Crypto mining company Riot Blockchain Inc.
RIOT,
+14.53%
surged 38%, to $5.80, as of Thursday. Shares of rival Marathon Digital Holdings Inc.
MARA,
+30.91%
were up nearly 55% at $6.04, over the past week. Ebang International Holdings Inc.
EBON,
-0.26%
popped up 98% over the past week and was trading at $7.5.

Overstock.com Inc. shares
OSTK,
+1.62%
were trading 16%, to $20.78, over the week.

Shares of Block Inc.
SQ,
+0.18%,
formerly known as Square, logged a 9.9% gain, to $71.19 for the week thus far. Tesla Inc. shares
TSLA,
+0.28%
were up 9.4% to $120.80.

PayPal Holdings Inc.
PYPL,
+1.58%
rose 4.4% over the week, to trade at around $79.54. Nvidia Corp.
NVDA,
+3.19%
were up 15.3% at $164.50 for the past week.

Advanced Micro Devices Inc. shares
AMD,
+2.52%
obtained 14% to $71.06 for the week.

Among crypto funds, ProShares Bitcoin Strategy
BITO,
+8.72%
added 12.7% to $11.89 Thursday, while counterpart Short Bitcoin Strategy ETF
BITI,
-8.68%
declined 11.4% to $34.78. Valkyrie Bitcoin Strategy ETF
BTF,
+8.83%
advanced almost 13% to $7.51, while VanEck Bitcoin Strategy ETF
XBTF,
+8.65%
went up 7.3% to $18.53.

Grayscale Bitcoin Trust
GBTC,
+7.04%
gained over 27% to $10.54.

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