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When will crypto winter end? Bitcoin halvings may not be enough to explain market cycles

By Frances Yue

Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I'm Frances Yue, crypto reporter at MarketWatch, and I'll walk you through the latest in this bear market.

Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

Crypto in a snap

Bitcoin gained 13.4% over the past seven days, and was trading at around $22,844 on Thursday, according to CoinDesk data. Ether rallied 32% over the seven-day stretch to around $1,534. Meme token Dogecoin rose 12.8% while another dog-themed token, Shiba Inu, is trading 10% higher from seven days ago.

Crypto Metrics

Biggest Gainers    Price   %7-day return 
Ethereum Classic   $24.21  68.1% 
Lido DAO           $1.46   56.4% 
cETH               $29.88  37.9% 
Lido Staked Ether  $1,461  36.4% 
Polygon            $0.86   35.5% 
                           Source: CoinGecko as of July 21 
Biggest Decliners  Price      %7-day return 
PAX Gold           $1,701.34  -2.2% 
Tether Gold        $1,706.93  -1.2% 
LEO Token          $5.23      -1.1% 
cDAI               $0.02      -0.6% 
Neutrino USD       $0.99      -0.5% 
                              Source: CoinGecko as of July 21 

What drives crypto cycles?

It's a popular narrative that crypto market cycles tend to coincide with bitcoin halvings, a process where the block reward given to the crypto's miners is cut in half after every 210,000 blocks mined, or about every four years.

According to historical patterns, a bitcoin halving event is often followed by a one-year bull market, a one-year bear market, and two years of recovering, some said.

However, bitcoin halvings may not be sufficient to explain crypto cycles, according to Matt Hougan, chief investment officer at Bitwise Asset Management.

Bitcoin halvings don't always sync with the big price moves in crypto, Hougan noted. Hougan also argued that the reduced supply in bitcoin is not enough to drive outsized price moves, and the halving events should already be priced in, as their timing is known to investors.

What's driving the market cycle, instead, was useful innovations in the space, Hougan said in an interview with MarketWatch.

In Bitcoin's early-days the rally in 2011 and 2013 was driven by the increase of crypto exchanges, according to Hougan. Coinbase, for example, was founded in 2012.

The launch of Ethereum in 2015 and the rise of the initial coin offering frenzy afterwards contributed to the crypto boom in 2017, while the 2021 bull market was mostly driven by the growth of decentralized finance and non-fungible tokens and the U.S. SEC's approval of bitcoin futures ETFs, Hougan noted.

For the remainder of the year, the crypto market could continue to be volatile, according to Hougan. "We're still working through the last of the deleveraging process," Hougan said. "We're also dealing with some short term regulatory headwinds, including what was expected to be sort of a tumultuous fall for crypto from a regulatory perspective."

However, he expects a crypto bull market to start to take hold entering 2023, despite a looming recession. "As we get into the next technological cycle in crypto, I think sort of the secular trends powering cryptos growth will overwhelm the macro trends," Hougan said.

Tesla's bitcoin sale

As crypto prices crashed, Tesla disposed of 75% of its bitcoin holdings for $936 million in the second quarter, according to the electric car marker's earnings report released Wednesday.

In a conference call, chief executive Elon Musk said the sale happened as he was "uncertain" about when COVID-related lockdowns in China would decline and he sought to maximize Tesla's cash position.

"We are certainly open to increasing our bitcoin holdings in future, so this should not be taken as some verdict on bitcoin," Musk told analysts on a call following Tesla's results.

"It's just that we were concerned about overall liquidity of the company given shutdowns in China," Musk said, before adding that the company did not sell any of its dogecoin.

Tesla (TSLA) bought about $1.5 billion worth of bitcoin early in 2021, when the crypto was trading above $30,000, but quickly sold 10% of that total in a move executives characterized as proof of liquidity. The decline in Tesla's remaining bitcoin resulted in an impairment of more than $100 million in the quarter, according to Chief Financial Officer Zachary Kirkhorn.

MarketWatch's Claudia Assis and Jeremy C. Owens wrote more here on Tesla.

Crypto companies, funds

Shares of Coinbase Global Inc. (COIN) lost 4.4% to $72.00 on Thursday, and they were down 5.7% over the past five trading sessions. Michael Saylor's MicroStrategyInc.(MSTR) went down 1.8% Thursday to $283.60, while it was up 39% over the past five days.

Mining company Riot Blockchain Inc. (RIOT) shares rallied 6.1% to $5.23 Thursday, and advanced 61% over the past five days. Shares of Marathon Digital Holdings Inc. (MARA) rose 3% to $12.86, with a 60.9% gain over the past five days. Another miner, Ebang International Holdings Inc. (EBON) shares dropped 6.5% to $0.56 on Thursday, while they were up 0.3% over the past five days.

Overstock.com Inc.(OSTK)'s shares went down 1.5% to $28.65. The shares gained 13.5% over the five-session period.

Shares of Block Inc. (SQ), formerly known as Square, lost 1.2% to $73.90, while its shares were up 18.5% for the week. Tesla Inc. (TSLA) shares rallied 10.4% to $819.3, while they were up 14.6% over the past five sessions.

PayPal Holdings Inc.(PYPL) went up 2.4% to $82.20, and it was up 18.2% over the five-session stretch. Nvidia Corp.(NVDA) shares edged up 1% to $179.90, looking at a 17% gain over the past five trading days.

Advanced Micro Devices Inc.(AMD) shares added 1.4% to $90.69 on Thursday, and were up 15.4% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF(BITO) were down 3% to $14.20 Thursday, while its Short Bitcoin Strategy ETF(BITI) gained 3% to $34.77. Valkyrie Bitcoin Strategy ETF(BTF) lost 3.2% to $8.84, while VanEck Bitcoin Strategy ETF(XBTF) tumbled 3.6% to $22.26.

Grayscale Bitcoin Trust(GBTC) dropped 3.9% to $14.97.

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-Frances Yue

 

(END) Dow Jones Newswires

07-23-22 1519ET

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