Money is once again flowing into cryptocurrencies. Big names including Bitcoin (BTC) have risen, but altcoins have jumped to double digits in the last day. While this is fine for crypto values, ‘volatility’ will likely be the name of the game in 2023. Crypto experts Travis Hoium and Lisa Walter look at the background of the recent rally.
Why did bitcoin and altcoins rise?
The crypto winter abruptly unraveled as tokens surged in the industry late Friday. The macro market environment in crypto trading lately cannot be ignored. This week’s inflation data showed that prices in the US actually fell on a monthly basis in December. This led investors to think that interest rate hikes could end sooner than expected. Stocks rose and riskier assets such as cryptocurrencies followed suit.
On a more significant level, the U.S. House of Representatives announced the Digital Assets, Financial Technology and Participation Subcommittee, which will be under the House Financial Services Committee. Lawmakers are talking about regulating cryptocurrencies in a more meaningful way. This is an early sign that the new Republican leadership may be getting serious about it. Signs of regulation have been met with applause by crypto traders over the past year. However, it did not yield much results. I think altcoins like Polkadot, NEAR, and Tezos (which have Blockchains built primarily for utility) would be in great positions if they had more regulatory certainty.
From a trading perspective, crypto is in a relatively low volume environment. This means that there is not much liquidity (buyers and sellers). The rise in values caused an attack that shook the market. It also led to the liquidation of short positions. In the last 24 hours alone, $624 million has been liquidated in major tokens and altcoins. This short squeeze is like fuel for a crypto rally.
What will happen now?
The cryptocurrency market remains extremely volatile and risky. But developers also continue to provide real benefit around Blockchain. In the long run, new businesses and payment solutions should raise the price of cryptocurrencies. However, this does not mean that the journey will be smooth.
I think the last day’s pop was driven by a sentiment recovery after FTX’s collapse. When FTX went bankrupt, it was clear that billions of dollars of assets would have to be liquidated or sold, which would drive down crypto prices. Traders got ahead of the move, but this week it was reported that $5 billion in cash and cryptocurrencies were recovered, some from the sale of leveraged positions. If the flood of sales is over, buyers can back off.
The market rally could continue and weaken. But there seems to be a change of mood in both the stock market and crypto. A slower rise in interest rates will be positive. Also, it is clear that there is a lot of leverage that has already left the ecosystem. But even if the future is bright, it will be a volatile journey.
What is the secret of the crypto market rally, has the bottom been seen?
cryptocoin.com As you follow, Bitcoin rose above $21,000 in the early hours of Saturday. It did so in response to market sentiment and an improving consumer price index. This was the highest level it had reached since the beginning of November. A combination of investors waiting for a bottom and signs of inflation peaking is believed to be behind the rise.
Leading crypto Bitcoin rallied to $21,047 earlier in the day. Thus, it exceeded $20,000 for the first time since November 8, 2022. Along with Bitcoin, it rose above $ 1,500, dragging other altcoins such as Ethereum, Cardano and Dogecoin with it. Cardano rose to $0.366 and Dogecoin to $0.089, while both altcoins gained more than 11% in 24 hours.
Today’s price surge has fluctuated across the entire cryptocurrency market, with market caps increasing by $86 billion. The US consumer price report shows inflation falling from December 2022 to January 2023. According to economic analysts, with the effect of this report, the Fed will slow down the rate hikes. This has helped boost risky assets like cryptocurrencies. These assets were already riding the wave of improved business data last week.
Cryptocurrencies rose alongside other risky assets such as the Nasdaq 100 stock index, which posted six days of profits. This supports the growing belief that there is a correlation between cryptocurrencies and the macroeconomics. Unlike in the past, when crypto served as an alternative to mainstream stocks, both assets now follow each other. Perhaps the influx of institutional investors in recent years has had a huge impact on this.
Sean Farrell, head of digital assets strategy at Fundstrat, explained that crypto assets are performing well following the soft CPI data. According to him, crypto’s relationship with macro will not disappear anytime soon. He expressed satisfaction with how the market price action reacted last week, noting that the absolute bottom for crypto prices may have already arrived.
