Market Wrap: Bitcoin Range-Bound as Altcoins Underperform

Bitcoin was stuck in a narrow range of between $36,000 and $37,000 on Thursday as some analysts remain cautious on speculative assets, including cryptocurrencies, while macroeconomic risks continue to linger.

Recent price jumps in both crypto and equities have stalled, while oil prices approached six-year highs on Thursday. Choppy trading conditions may reflect uncertainty among investors, many of whom typically rotate into less volatile assets during the early phases of a tightening cycle (rising interest rates).

And the threat of rising inflation could force central banks to drain liquidity from financial markets, which has underpinned the rise in stocks and cryptos over the past year.

"We expect that inflation will continue to surprise the Fed on the upside, especially next year and beyond, when inflation is likely to trend above 3% for some time instead of easing toward 2% as the Fed expects to achieve with its benign policy hiking cycle," Prajakta Bhide, a strategist at MRB Partners, wrote in a Thursday briefing.

Similar to equities, crypto markets have also shifted from risk-on to risk-off over the past two weeks. Traders typically overweight bitcoin because of its lower risk profile relative to alternative cryptocurrencies (altcoins). And on Thursday, altcoins underperformed, suggesting that some crypto bulls remain on the sidelines.

So far this year, bitcoin's return gap relative to the S&P 500 has narrowed significantly. Meanwhile, the Thomson Reuters Commodity Index is up 12% year to date, compared with a 23% drop in BTC and a 5% decline in the S&P 500. Commodities are an inflation hedge when the demand for goods and services outstrip supply.

Deribit, the biggest crypto options exchange, wrote in its newsletter to investors Thursday that the volume of option trades on its platform in ether, the native cryptocurrency of the Ethereum blockchain, rose 36% in January from December. For bitcoin options, volume rose 10% during the same period.

The increased volume was partly due to trading strategies around the price drop in January. Despite the significant number of transactions, lower underlying price levels made total volumes measured in U.S. dollars slightly lower than last month.

Digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.