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Crypto starts the year with a bounce in its step

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This transcript is a translation from the original interview which aired on 18 January, conducted in Afrikaans and aired on RSG Geldsake, here.

RYK VAN NIEKERK: Marius Reitz from Luno joins us now because it’s Wednesday, and on Wednesdays we chat about the crypto industry. Marius, welcome to the programme. Last year was not a good year for cryptocurrencies. Bitcoin fell around 63%, Ethereum was almost 70% down. It was the second-worst year for crypto prices ever.

But 2023 started off on a good footing. Bitcoin is already up 23% [year to date], Ethereum 30% and the prices have gone up every day over the past two weeks. This positive run is the longest in a decade, so it’s a fairly big turnaround. Is this a trend or just volatility?

MARIUS REITZ: Ryk, it sounds much more positive. As you said, crypto investors certainly have something to smile about after a very difficult year last year. As you mentioned, Bitcoin and Ethereum, the two biggest cryptocurrencies, are respectively up 23% and [30%]. I think investors are giving a sigh of relief after the difficult year. Speculators I think benefit again from an increase in trading volumes which are also 114% up compared to last week. Daily volume traded was around US$10 million.

Bitcoin led the charge. Altcoins – referring to all cryptocurrencies other than Bitcoin – fared better. The reason was that when Bitcoin shows momentum, the expectation among speculators is that the lesser-known altcoins might perform better, so there we saw a rise as well.

I think at a more technical level it’s always difficult to put one’s finger on price movements. First, there seems to be what is called a ‘short squeeze’ recently in the market – basically short sellers who think prices will fall are forced to buy back in the market, which pushes up the price.

Secondly, inflation numbers in the US, I don’t think it was the starting point, but the market woke up a bit more at the end of last week.

But, as usual, I think it’s almost impossible to speculate on what the price will do short term. It might be short-lived. I think the market expects the price to possibly stabilise and move more sideways.

RYK VAN NIEKERK: I find the sudden support for Bitcoin in particular interesting. While we chatted regularly in [2022] our conversation was often about Ethereum and Cardano and many other, let’s say, up-and-coming cryptocurrencies, and Bitcoin was seen as almost a dinosaur in the industry. But it’s quite evident that there is a greater focus on Bitcoin now than there was last year. Has there been a change in sentiment in the industry, with Bitcoin again being considered the industry [standard]?

MARIUS REITZ: We have to make a distinction, Ryk. I think there are many projects that are very interesting, many new cryptocurrencies such as Ethereum, Solana and Polygon – many projects showing great future potential. These projects are however not the store of value that Bitcoin is. I think over the past couple of years and in the situation we find ourself today, if I look at the cracks that have appeared in global financial systems, political environments and social systems, there is an increasing demand for a form of money, a scarce digital asset that is free of central control to hedge against political interference, etc. I don’t think this is mainstream, but there is a particular group of people who want something like this.

I consider this largely the reason we still see high demand for Bitcoin. But the fact of the matter is this is not the only reason investors are interested in it. And I think if we look at some of the other projects, it has more to do with innovation and a way we can do transactions better, cheaper and faster in future. There is a difference between the two, and I think the reason is that Bitcoin is seen as more of a form of ‘sound money’. So there is a different type of call for it.

RYK VAN NIEKERK: I always find it interesting to chat about volumes, because they show that the supply is on the increase, and then there is of course demand for it. So high volumes mean that there is much more trade going on. You indicated earlier on that there had indeed been high volumes, but can you see that your clients are suddenly starting to buy or to take profits if the price suddenly rises so rapidly?

MARIUS REITZ: I think a price increase is the trigger after an increase in the demand, and then there must also be an increase in supply. There are a couple of reasons. First, many investors burnt their fingers in the previous bull run in 2021/early 2022, and they see that as a rare opportunity to take more money off the table.

In the past couple of days we have also seen slightly less of a flow to stablecoins. Then it’s also the usual case of long-term investors thinking that cryptocurrency and Bitcoin in particular have a future in a future financial system, which they then see as a buying opportunity.

So I think those dynamics are always playing out between speculators, long-term investors and institutional investors. I think what we’ll also see this year is that there were many institutional investors leaving the market in 2022, who reduced their exposure to cryptocurrency on their balance sheets. And I think with a little more stability this year, where all the crypto crises and the platforms that were in the headlines last year, stabilise and more regulation in the market, we should see demand from big institutions as well.

RYK VAN NIEKERK: Marius, thank you for your time tonight. That was Marius Reitz from Luno.

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