Money is once again flowing into cryptocurrencies. Big names including Bitcoin (BTC) have increased, but altcoins have jumped to double-digit numbers in the last day. While that may be enough for cryptocurrencies, ‘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 dissolved as tokens rose in the episode late Friday. Recently, the macro market environment in crypto trading cannot be ignored. This week’s inflation information 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 worthy level, the U.S. House of Representatives announced the Digital Assets, Financial Technology and Affiliate 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 important in this regard. Signs of regulation have been met with applause by crypto traders over the past year. But it didn’t give much result. I think bitcoin and altcoins like Polkadot, NEAR, and Tezos (with Blockchains built mainly for utility) would be in great positions if there was more regulatory absolutes.
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 prices 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 about to fuel 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 drive up the price of cryptocurrencies. But that doesn’t mean travel will be problem-free.
I think the last day’s pop was driven by a sensitivity recovery after the collapse of FTX. 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 blocked 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 in sentiment in both the stock market and crypto. A slower rise in interest rates will be positive. Moreover, it is clear that there are many levers that have 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?
Bitcoin rose above $21,000 in the early hours of Saturday. It did this in response to market sentiment and the matching consumer price index. This was the highest level it had reached since the beginning of November. A combination of investors’ anticipation of the bottom and signs of peaking inflation is believed to be behind the increase.
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 and altcoin, it rose above $ 1,500, dragging other altcoins such as Ethereum, Cardano and Dogecoin. 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, which has raised $86 billion at market value. 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 essentially riding the wave of streamlined business information last week.
Cryptocurrencies rose alongside other risky assets, such as the Nasdaq 100 stock index, which posted six-day profits. This supports the growing belief that there is a correlation between cryptocurrencies and macroeconomics. Unlike in the past, when crypto served as an alternative to mainstream equities, now both assets are following each other. Presumably, the influx of institutional investors in recent years has had a great impact on this.
Fundstrat’s digital asset strategy lead Sean Farrell explained that crypto assets are performing adequately following the soft CPI data. According to him, crypto’s connection with macro will not disappear anytime soon. Speaking last week with his satisfaction with how the market price action has reacted, he pointed out that the absolute floor for crypto prices may already have arrived.