Following several sessions in the red, cryptocurrencies and stocks saw strong gains on Thursday as traders for digital assets processed the demise of FTX and inflation data came in better than anticipated.
The prices of bitcoin and ether increased by 12% and 21%, respectively, on Thursday. The recovery comes a day after Binance pulled out of the arrangement that investors were hoped would preserve the industry on Wednesday, which caused both currencies to suffer further losses.
A message from analysts at Trezor, the crypto hardware wallet from SatoshiLabs, read:
“This week’s events also underline the power of bitcoin as a genuinely decentralized cryptocurrency offering financial self-sovereignty to the individual — in stark contrast to supposedly reputable tokens that can be wiped out overnight. These crypto earthquakes stimulate a consumer response.”
Due to decreased inflation fears and increased anxiety about a recession, stocks also ended the trading session in the black. The S&P 500 and Nasdaq ended the day with respective gains of 6% and 7%. The Consumer Price Index for Thursday revealed a 7.7% increase in prices year over year and a 0.4% increase over the previous month, which was less than analysts had predicted.
The Leuthold Group's chief investment strategist, Jim Paulsen, stated:
“As worries of recession and the potential for a financial shock overtake inflation anxieties, bond investors may want to consider ‘lengthening’ maturities, and stock investors should prepare for a renewed and sustained rally.”
DataTrek Research co-founder, Nicholas Colas, shared:
“Even Wednesday’s sell-off, which saw the S&P 500 and Nasdaq Composite indexes closing 2.1% and 2.5% lower, respectively, should have been greater. The decline should have been worse, given unexpected midterm results and volatile virtual currencies. Investor confidence needs a positive catalyst from here, however.”
Colas said that investor apprehension can extend throughout a brokerage account. He added:
“While [crypto] is theoretically very different from equities, many investors hold both on the same retail investor trading platforms. A sharp decline in online currency values can therefore spill over into other, unrelated, markets. There’s an old trader’s saying that ‘in a crisis, correlations go to 1.”
Analysts caution that cryptocurrencies still have a long storm to weather. BitOoda's chief operating officer, Tom Nath, had this to say:
“It will take weeks to learn the full extent of which firms have exposure to FTX and what percent of customer funds are recoverable. FTX is still claiming that assets exceed customer liabilities, but that illiquidity is preventing them from unfreezing withdrawals.”