Bitvavo Market News - AI token prices are skyrocketing

Both bitcoin and ether have had a good week. Bitcoin led the market in the past 24 hours, but before that ether managed to rise by almost 6%. Also, AI tokens have performed exceptionally well. How has this come about? Find out in this edition of Bitvavo Market News.

Market update

Until Monday afternoon, the crypto market had had a quiet week. For two weeks, the price of bitcoin hovered between €46,700 and €49,000. The majority of trading has taken place in an even narrower price range of just 4%.

The market appeared to need some time to digest the 38% increase from the low of €35,500 on January 23rd, and that's fine since it gives market participants the chance to come to terms with the fact that bitcoin is so high this early in the market cycle. 

Some participants are taking profits, while others, who purchased at the peak in 2021, are finally exiting without incurring any losses. The market is gently cooling but without the price showing any significant drop. The decreased volume is an indication that this consolidation is nearing the end.

And so on Monday afternoon, around the opening of the American market, calm gave way to explosiveness. In a short period of time, the bitcoin price rose from € 47,000 to almost € 52,000, a difference of 10%. Once again, US bitcoin funds attracted attention with an impressive inflow of over $400 million.

During the first few weeks of February, we were impressed by the large capital flows into U.S. spot bitcoin ETFs. Bitcoin trackers collectively withdrew nearly 45,000 bitcoin from the market in the week commencing February 12. That's 9,000 bitcoin per day, and ten times as much as the on average 900 bitcoin that miners put into circulation every day. 

Then last week, the picture changed dramatically. After the holiday on Monday, during which U.S. stock markets remained closed, ETFs experienced a couple of weak days. 

It is tempting, especially now that the inflow seems to be picking up again, to extrapolate a few weeks of high inflows to the following months and conclude that all-time highs and prices of many tons per bitcoin are within reach. But we actually know far too little about the money flows to these ETFs to make those kinds of predictions.

Because who actually buys those ETF shares? Are these long-term investors, or perhaps traders who sell their shares at the first hint of headwind? We still need some patience for an answer. In the meantime, we will continue to monitor the ETFs closely.

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AI tokens on the rise

If newspapers are to be believed, it won't be long before AI takes over. It's everywhere; in music, the movies, word processors, phone apps, and the crypto world too. Whenever a big announcement is made that concerns artificial intelligence, this is reflected in the crypto and stock markets in the form of increased volatility.

A week and a half ago, OpenAI, the brainchild of Sam Altman, announced a new feature: Sora allows users to generate video content simply by entering a short, textual command. Shortly after the announcement, trading volume in AI tokens soared to a record high. Worldcoin, a project also headed by Altman, did particularly well, increasing nearly 260% in February.

Last week, Nvidia released its latest quarterly figures, which were once again impressive and exceeded expectations. For the fourth quarter, Nvidia posted a revenue of $22.1 billion, up 265% year-on-year. Nvidia also reported a fourth-quarter net income of $12.3 billion. Nvidia shares rose by 8% as a result of the annual figures they published.

Nvidia's growth is considered evidence of AI's definitive breakthrough, and is resulting in the "Nvidia effect" across the asset class. Despite the relatively quiet week in the crypto market, AI tokens remain strong. According to CoinGecko, prices for the whole category increased 16.4% over the course of just one week. Golem (GLM) and SingularityNET (AGIX) are also noteworthy, with increases of 71.4% and 31.7% respectively.

Major Ethereum upgrade coming soon

Ether posted a price increase of almost 6% last week. On social media, this was more than enough reason for the ETH bulls to announce: "Ethereum is headed straight for all-time highs!"

Pollsters cite the following reasons for the increase: impending approval of a spot ether ETF, Layer 2s changing the game, multiple airdrops, and the beginning of a new NFT bull market. Narrative follows price, and it is clear that the correct narrative is still being sought for ether. Perhaps the impending upgrade is the best explanation, as it is often the case that major upgrades have temporarily led to higher prices.

In just under three weeks, the Dencun upgrade is expected to be rolled out on the Ethereum mainnet. The two main improvements this upgrade provides:

• EIP-4844, also known as 'Proto-danksharding', which introduces a new transaction type to Ethereum in the form of blobs. These are designed to reduce the settlement costs Layer 2 solutions pay. A blob can be used to store data, for example, to validate that the work outsourced to a Layer 2 has been carried out fairly. Blobs get their own fee market and therefore do not suffer from the high spikes that periodically occur.

• EIP-4788. This upgrade will mean a third party will no longer be required to communicate between the part of Ethereum that executes transactions and the part that approves the validity of transactions. This simplifies staking processes, and in doing so, a wide range of applications will no longer have to make error-prone assumptions about the state of the Ethereum network - this includes staking pools, restaking, and bridges.

In other news

• Reddit invested a small portion of its cash reserves in bitcoin and ether. The company also holds matic (the Polygon network currency), which the company says it uses "to pay for the sale of certain virtual goods."

• Andreessen Horowitz (a16z) invests $100 million in EigenLayer. This is surely the icing on the cake for the restaking protocol, which last month secured a whopping $5.5 billion.

• Financial advisor platform opens doors to bitcoin ETFs. Carson Group selected funds from BlackRock, Fidelity, Bitwise, and Franklin Templeton according to reputation and volume. In total, $30 billion is now managed by Carson.

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