Why stocks may have more room to fall than crypto in 2023, according to an analyst

by Arthur · February 23, 2023

Hello! Welcome back to the Distributed Ledger. This is Frances Yue, crypto reporter at MarketWatch.

Bitcoin has traded in a range between $23,500 and $25,000 for the past week, as US regulators increase oversight of the industry, while Hong Kong sets up a task force to achieve its goal of becoming a crypto hub.

I caught up with Martin Leinweber, digital asset product strategist at MarketVector Indexes, who said he expects more downside in the US stock market than in crypto this year amid macroeconomic uncertainty.

As usual, find me on Twitter at @FrancesYue_ to share some thoughts about crypto, this newsletter, or your personal stories with digital assets.

Crypto vs Stocks

“I think the crypto market has digested a lot more negative headlines than the stock market,” MarketVector’s Leinweber said.

As the Federal Reserve aggressively raised interest rates, bitcoin lost more than 65% in 2022 and ether fell nearly 70%, according to CoinDesk data. Some smaller tokens lost 90% of their value or more. Unlike the Dow Jones Industrial Average

DJIA

down about 9% in 2022, the S&P 500

SPX

ended the year 19% lower, and the technology-heavy Nasdaq Composite

COMP

fell about 33%, according to FactSet data.

So far this year, bitcoin is up more than 45%, while the Dow was roughly flat and the S&P 500 was up around 4.6%. The Nasdaq has risen around 10 percent.

“From looking at what’s happening now in the crypto space — like all the transactions, price behavior, the firmness of the sector and even the relative strength against stocks, I think they’re showing a bullish sign,” Leinweber told Distributed Ledger in a call.

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Hong Kong’s crypto push?

Earlier this week, Hong Kong outlined a plan to allow individual investors to trade cryptocurrencies with larger market caps. The city will also set up a task force to make recommendations on the development of the digital asset industry, according to several media reports.

Tokens with strong China links soared over the past week, registering double- and even triple-digit gains. Cryptocurrency Conflux increased by 204% in the last seven days. Filecoin went up 43% and Neo increased by over 40% in the same period.

Meanwhile, during the crypto rally last week, most of the trading activity occurred during the Asian and European trading hours, noted James Lavish, managing partner and portfolio manager at the Bitcoin Opportunity Fund. “It was clearly not American activity,” according to Lavish.

The Shanghai Upgrade

Ethereum’s Shanghai upgrade, which will allow validators of the blockchain to withdraw their staked ether, is scheduled for March. Staking allows crypto holders to earn rewards while using their existing holdings to secure the underlying blockchain.

Some are concerned that the Shanghai upgrade will bring short-term volatility to ether, as investors may withdraw their stake coins. However, Leinweber said he believes the upgrade is bullish for the crypto in the long term, as increased liquidity could attract more people to bet on the ether.

To be sure, there is still regulatory uncertainty surrounding efforts in the United States. Earlier this month, crypto exchange Kraken ended its staking program in the country, after the Securities and Exchange Commission accused the company of failing to register the program as collateral.

Bullish signs from the options market

Crypto derivatives markets have also sent some bullish signals, according to Greg Magadini, director of derivatives at Amberdata.

The six-month bitcoin options have priced in more upside volatility than downside volatility, meaning traders expect more upside surprises in the coming months, Magadini noted. The trend is very different from the bitcoin options dynamics in 2022, Magadini said in a call.

Crypto in a flash

Bitcoin lost 1.1% in the past week and was trading at around $23,919 on Thursday, according to CoinDesk data. Ether fell 2% in the same period to around $1,660.

Biggest winners	Price	%7-day return
Conflux	$0.28	204%
Stacks	$0.85	149%
amp	$0.009	73.9%
WEMIX	$2.5	72.5%
Filecoin	$7.82	42.5%
		Source: CoinGecko as of February 23

Biggest losers	Price	%7-day return
The Mina Protocol	$0.99	-17.4%
ImmutableX	$1.04	-16%
Aptos	$13.48	-15.5%
Phantom	$0.50	-13.4%
Bitget Token	$0.39	-12.6%
		Source: CoinGecko as of February 23