The State of Crypto: Liquidity, Short Positions, and Regulatory Concerns
Hal Press from North Rock Digital urges caution among crypto investors due to low liquidity and high short positions, which could lead to a short squeeze and a further rise in price.
However, Press maintains that long-term concerns about the crypto market remain. He is particularly concerned about the increasing global regulation of cryptocurrencies, which could make it harder for the technology to gain mainstream adoption.
Also to be clear our caution does not fundamentally stem from Shanghai (ETH remains our largest position, albeit also reduced). We are cautious because much of the world is attacking crypto and making adoption harder. Yet, most people in the space think this doesn't matter… https://t.co/7vLuqhRa2d
— Hal Press (@NorthRockLP) April 9, 2023
Many countries, including the G7 nations, are adopting more stringent regulations on crypto to ensure customer protection and greater transparency for crypto businesses.
Press also warns that potential regulatory actions might force investors to reconsider their positions. He emphasizes that price drives narrative, and a significant regulatory action could change the market’s narrative if no strong buyer supports it.
Additionally, Press notes that their inelastic demand can explain the durability of major cryptocurrencies. However, he cautions that this situation could present a challenge for the market to sustain its current levels over time.
For example, Changpeng Zhao, the CEO of Binance, has recently moved almost $1 billion in BUSD from the Industry Recovery Wallet to “native crypto” such as BTC, BNB, and ETH. This decision was influenced by Paxos’ choice to discontinue minting BUSD, causing its market cap to decline slowly.
As this conversion winds down, minimal new money is coming into the market. Press admits that he may be mistaken and that the market may continue to trend upward.
Nonetheless, he believes that the potential risks mentioned should be considered for a more prudent approach to the cryptocurrency market, especially given the potential consequences of increased regulation.