Lido And Solana Outperform As Markets Rally

The first week of 2023 is shaping up to be a good one for crypto markets.

Leading smart contract platform Ethereum saw its native token rise 5%, while Bitcoin, which recently turned 14, posted a more modest gain of 2%.

ETH Price + BTC Price, Source: The Defiant Terminal

Meanwhile, liquid staking giant Lido and embattled Layer 1 Solana outperformed the broader market, surging 45% and 38%, respectively, in the past week.

LDO Price + SOL Price, Source: The Defiant Terminal

Solana’s outperformance is likely attributable to the recently launched BONK memecoin, which has fueled a surge in network activity.

Tax Loss Selling

The tax year for individual investors in the US ends on Dec. 31 every year. Shrewd crypto investors potentially turned to tax-loss harvesting to reduce or defer their federal tax bills, pressuring markets in December.

Tax-loss harvesting refers to investors selling their investments at a loss to lower their capital gains for the year or to incur capital losses which can be used to offset future capital gains.

Cryptocurrencies are currently exempt from the wash-sale rule, which prevents investors from repurchasing their sold assets for a period of 60 days. This is because cryptocurrencies are classified as property in the US, and the wash-sale applies only to securities.

In 2022, investors had to endure what some commentators deem to be the worst crypto bear market ever, with the overall market capitalization of digital assets losing over $2T. 

The downtrend was exacerbated by centralized entities blowing up in tandem with numerous nine-figure bridge exploits.

Bear Attack: Investors Lick Their Wounds After Grim 2022

Global Markets Had A Volatile Year As Inflation Took Centre Stage

Meanwhile, rising inflation, interest rates and other macroeconomic headwinds further soured investors’ appetite for risk assets like cryptocurrencies.

Liquid Staking Heats Up Ahead Of Shanghai

Liquid staking derivatives (LSDs) have been a hot topic of discussion on crypto Twitter.

Users believe that Ethereum’s upcoming Shanghai hard fork, which is slated for March, will allow liquid staking protocols to finally accrue fees. This is due to the inclusion of EIP-4895, which enables the withdrawal of staked ETH tokens.

The governance tokens of these LSD protocols have rallied sharply in the past week. Lido DAO’s LDO surged 45%, Frax Finance’s FXS gained 16%, while Rocket Pool’s RPL saw an upswing of 16%. Stakewise’s SWISE token gained 70%.