Bitcoin, Ether Hold Steady After Genesis' Bankruptcy; Crypto Traders Say Bad News Was Priced In

The path of least resistance for crypto is on the higher side, one observer said, drawing attention to bitcoin's tendency to carve out double-digit gains during the Chinese New Year holidays.

AccessTimeIconJan 20, 2023 at 7:22 a.m. UTC
Updated Jan 20, 2023 at 4:28 p.m. UTC
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"It is incredible to see how bitcoin has reacted to the Genesis Bankruptcy news," one crypto observer tweeted Monday, marveling at the top cryptocurrency's muted reaction to one of the largest institutional firm's crypto lending business filing for bankruptcy protection.

Bitcoin (BTC), the leading cryptocurrency by market value, traded in stasis at around $21,000, exhibiting a 0.7% gain on a 24-hour basis after the Genesis news hit the wires. The second-largest cryptocurrency, ether (ETH), changed hands near $1,545, up 1.2%, CoinDesk data shows.

However, not everyone was surprised by bitcoin and ether's resilience.

"The market appeared to expect the Genesis bankruptcy filing for the last 48 hours as the GBTC discount suddenly widened again. With Genesis filing for bankruptcy, this removes a negative overhang from the market, and crypto investors can finally focus on fundamentals," Markus Thielen, head of strategy and research at crypto services provider Matrixport, said.

The discount in the Grayscale Bitcoin Trust Shares (GBTC) relative to the underlying bitcoin held in the fund widened from 36% to 42% this week, according to data sourced from YCharts. Grayscale, Genesis and CoinDesk are independent subsidiaries of the Digital Currency Group (DCG).

The threat of Genesis' bankruptcy had been looming large since the lender froze withdrawals after the stunning collapse of Sam Bankman Fried's FTX exchange in November.

And the FTX contagion fears kept the crypto market under pressure in the final two months of 2022, even as macroeconomic headwinds became tailwinds and traditional risk assets rallied.

"Everyone knew it was coming," Mike Alfred, a value investor and founder of digital assets investment platform Eaglebrook Advisors, said, referring to the steady price action in the market.

Alfred, however, warned of a continued flow of bad news ahead. "There are two to four other firms that are currency-insolvent, and it will take a shock probably from the real economy to reveal this. Rates rising combined with a major volatility spike and/or sovereign debt issue could tip a few more firms," Alfred noted.

That said, the market could continue to show resilience to bad news, considering the lack of sellers in the market, as analysts told CoinDesk earlier this month.

Besides, the crypto market has seen a bull revival this month, with bitcoin and ether gaining 27% and 29%, respectively and sophisticated traders scrambling to add upside exposure.

"Transaction volumes have started to rise again on the Ethereum blockchain and this has resulted in crypto outperforming traditional assets, such as U.S. stocks, by +25% since the beginning of the year," Thielen noted.

Thielen said that the path of least resistance for the market is on the higher side while heading into the seasonally bullish period of the Chinese New Year. This year, the period begins on Jan. 22 and ends on Feb. 9.

"Buying bitcoin at the end of the first day of Chinese New Year and selling it 10 trading days later would have returned +9%, on average, with all of the last eight years (2015-2022) showing positive returns. This is a hit ratio of 100%," he said.

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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


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