Crypto Beat Other Assets in the First Quarter. It’s Still on Shaky Ground.

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Despite crypto’s recent success, there is reason for caution.


Bitcoin and other cryptocurrencies beat other asset classes in the first quarter, with the largest token rising more than 70% through Friday.

Crypto was lifted by hopes of looser monetary policy and bank turmoil that supporters say shows a use-case for the tokens.

But there are signs the rally can’t last.

Bitcoin rose 72% to $28,440 between the end of the year and Friday afternoon, while Ether, the second-largest token, rose 53% to $1,827. The total market value of all cryptos rose 49% in the first quarter to $1.19 trillion, according to

A number of factors helped drive the performance. Crypto ended 2022 in one of the worst funks in its history, as the industry reeled from the failures of several major firms culminating in the implosion of exchange FTX amid fraud allegations.

The change in sentiment began in January, when a modest inflation report gave hope to investors in all risky asset classes that the Federal Reserve could ease up on rate increases.

In March, the tokens rallied again as three banks failed, which some token supporters claimed lent evidence to Bitcoin’s use as a “safe haven” from the traditional financial system. That happened notwithstanding two of the three banks—
Silvergate Capital
and Signature Bank—having close crypto ties.

Despite tokens’ recent success—with some analysts saying it could be a new bull market—there is reason for caution.

For one, even as prices rise, investors continue to pull money off major exchanges like those of
Coinbase Global
(ticker: COIN) and Binance, said BofA Global Research analysts in a report on Friday. Investors pulled more Bitcoin out of exchanges this past week than in any other week of the year. That is usually a positive sign for prices, since it means investors don’t plan to sell anytime soon.

But more telling, it was also the second biggest week of outflows for so-called stablecoins, which investors often use to buy other tokens “indicating that investors continue to move to the sidelines,” the analysts said. In the past 11 weeks, investors have pulled $14.2 billion in such coins from exchanges.

Indeed for much of the past year, Bitcoin has risen in price even as liquidity has been sapped from the market and trading volume has dropped, indicating that it might not take much bad news to drive tokens lower. The market’s liquidity problems have only compounded since Silvergate and Signature said they would wind down. Both banks ran internal payments networks that were widely used among exchanges, market makers, and investors, and without them, the token market has faced wider bid-ask spreads and other costs as investors seek alternatives.

Investors are also on edge as government enforcers appear to be cracking down on Coinbase, Binance, and other central figures in the industry. Coinbase in March disclosed it had received a warning from Securities and Exchange Commission staff that it could be sued for securities violations, while the Commodity Futures Trading Commission sued Binance accusing it of breaking federal law. In the meantime, some crypto firms have said they are having trouble finding basic banking services.

Token prices may be hard to predict in the short-term, but this rally is built on shaky ground.

Write to Joe Light at [email protected]

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