First Mover Asia: What's Next for Bitcoin After Biggest One-Day Price Pop in 2 Months?

Good morning. Here’s what’s happening:

Prices: Bitcoin (BTC) posted its biggest one-day return in two months, shooting up 5% to surpass the $19,000 level.

Insights: Security firms such as OpenZeppelin say blockchain bridges can benefit from security features built during the ongoing bear market can help prevent the huge attacks of 2022.

Prices

CoinDesk Market Index (CMI) 926 +35.3 ▲ 4.0% Bitcoin (BTC) $18,872 +1007.2 ▲ 5.6% Ethereum (ETH) $1,417 +32.7 ▲ 2.4% S&P 500 3,983.17 +13.6 ▲ 0.3% Gold $1,899 +24.8 ▲ 1.3% Nikkei 225 26,449.82 +3.8 ▲ 0.0% BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)

This week’s suddenly energetic crypto markets got an extra jolt Thursday from the U.S. government’s latest consumer price index (CPI) reading for December, showing a slowing pace of price rises to 6.5% on an annual basis. Many crypto traders and traditional economists took the report as a sign that the Federal Reserve can soon declare victory in its campaign to bring down inflation, which means risky assets won't have to face stiff monetary-policy tightening pressure for much longer.

Bitcoin (BTC) posted its biggest one-day return in two months, shooting up 5% to surpass the $19,000 level that the largest cryptocurrency hadn't seen since the market tremors first started to appear in the moments when Sam Bankman-Fried's FTX exchange and crypto empire first started to unravel.

"If we can take out that $19K level, then we are definitely en route for $21K," Julius de Kempenaer, senior technical analyst at StockCharts.com, told CoinDesk TV's "All About Bitcoin" show.

CoinDesk markets analyst Glenn Williams Jr. took a deep dive into the inflation figures and argues it might be too soon to get excited about a Fed pivot. Traders in fixed-income markets are pricing in expectations of a 0.25 percentage point hike at the Fed's next meeting – a slowdown from the recent pace. Fed officials assert that while the pace of hiking may slow, the campaign itself isn't on the verge of ending anytime soon – with many more hikes to come. "The market does not believe that," Joe Orsini, vice president of research for Eaglebrook Advisors, told CoinDesk TV.

Dexterity Capital's Michael Safai said in emailed remarks that, this week's rally notwithstanding, the lingering malaise from last year's crypto-industry meltdown is just too much to shrug off, just yet. In fact, late Thursday, the U.S. Securities and Exchange Commission alleged in a lawsuit that the crypto exchange Gemini and crypto lender Genesis Global Capital sold unregistered securities – adding to the drama and speculation over the future of Digital Currency Group (which also owns CoinDesk).

"We still have a couple of big shakeouts left in crypto, with some bankruptcy messes that have to be sorted and other firms still fighting to stay solvent," Safai said. "This will have a bigger impact on prices over the next couple of months.”

Insights

Crypto Bridges Had a Horrid 2022, But Security Firms Say This Year Doesn’t Have to Be as Bad

By Shaurya Malwa

A key part of the crypto ecosystem has received harsh criticism over the past several months because of its importance and yet fragile architecture, which led to an estimated $2 billion in losses in 2022.

Bridges, or blockchain-based tools that connect different networks, are essential for the movement of liquidity in the crypto ecosystem. Bridges allow users to transfer tokens and other digital assets, such as non-fungible tokens (NFT), between various chains – solving what was previously a difficult problem.

Bridges allow users to port assets across different blockchains, solving one of the main pain points – a lack of interoperability among the chains. And since blockchain assets are often not compatible with one another, bridges create synthetic derivatives that represent an asset from another blockchain.

This is where the potential for an exploit lies. Last year, February saw Wormhole’s $375 million exploit, followed by a $625 million exploit of Ronin Bridge the next month. Then in August, Nomad Bridge was attacked for $190 million.

However, security firms such as OpenZeppelin say bridges aren’t inherently susceptible to attacks and that security features built during the ongoing bear market make for an opportune time for developers to reinforce features.

“Cross-chain bridges need to maintain access to a large reserve of funds to underwrite the coins they wrap and transfer, so this makes them a prime target for attackers,” Michael Lewellen, head of solutions architecture at OpenZeppelin, told CoinDesk in a recent chat.

He added that while bridges may always remain a target for hackers, the usage of continuous security monitoring would make them less vulnerable. “Most bridges are inherently centralized in key areas so they have a lot of power available to respond to and contain attacks, but only if they do so quickly,” Lewellen said.

Among Lewellen’s solutions are the use of real-time security and monitoring features that kick in as soon as an exploit is detected. This may mean deploying smart contracts that block the transfer of funds over a bridge, or even lock the funds on the bridge itself, could they be flagged as a breach.

Such an approach may be more beneficial compared to relying on audits, a newly formed crypto industry where developers try to attack protocols to locate flaws apart from proof-reading one’s code.

“Pre-launch audits of the code underpinning liquidity pools have proved to be insufficient in anticipating the likelihood of their falling prey to security failures,” Lewellen said. “For developers to maintain the security of their protocols, real-time security practices need to be sustained after launch to keep them alert to how their protocols are operating under real-world usage.”

Such steps would still not keep all attackers at bay, Lewellen warns. “Many attackers will use both technical exploits and malicious trading practices to seize funds in unexpected ways,” he said.

As of the time of this writing, there’s still over $6 billion locked on blockchain bridges, data from DeFiLlama shows.

Important events

9:00 a.m. HKT/SGT(1:00 UTC) Europe's Industrial Production s.a. (MoM/Nov)

2:00 p.m. HKT/SGT(6:00 UTC) Michigan Consumer Sentiment Index (Jan)

8:00 p.m. HKT/SGT(12:00 UTC) New Zealand ANZ - Roy Morgan Consumer Confidence (Jan)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bitcoin Breaks Above $18K as US Inflation Rate Slows to 6.5% in December; Crypto Layoffs Continue

The consumer price index (CPI) slipped 0.1% in December, roughly inline with expectations for a flat reading. On an annualized basis, the CPI was higher by 6.5%, inline with expectations and down from 7.1% a month earlier. Eaglebrook Advisors Vice President of Research Joe Orsini weighed in. Plus, Blockchain.com said it's letting go of 28% of its workforce, or about 110 employees. And, Rep. Jim Himes (D-Conn.) shared his outlook on the future of U.S. crypto regulation.

Headlines

SEC Alleges Gemini, Genesis Sold Unregistered Securities:Gemini and Genesis were engaged in a public spat after Genesis suspended withdrawals last year.

Polygon’s Blockchain to Undergo Hard Fork: The software upgrade scheduled for Jan. 17 will address gas spikes and chain reorganization.

US House Republicans to Set Up Crypto Committee to Oversee Shaky Industry, Report: The new subcommittee on digital assets, financial technology and inclusion will be chaired by Rep. French Hill (R-Ark.)

Sam Bankman-Fried Blogs Like a Crypto Robin Hood, but in Court He's Not So Charitable: The FTX founder’s claimed largesse about giving his funds away contrasts with a legal battle to keep control of $450 million in shares – that were paid for a loan from Bankman-Fried’s Alameda Research

Sam Bankman-Fried Denies Stealing FTX Funds in New Online Post:The former FTX CEO blamed the exchange's collapse on the crypto market meltdown, Alameda’s poor hedging and a "targeted attack" by Binance.