The price of bitcoin was hovering at around $20,700 and for the first time, it has traded above $20,000 since the first week of October. Ether was recently trading at around $1,550. What could have caused the price action to finally break away from the year-long downtrend?
Bitcoin and Ethereum Rally Liquidates Over $1 Billion
The price of Bitcoin surpassed $20,000 for the first time in weeks, Ethereum surpassed $1,500 for the first time since the post-merge fallout, and the market as a whole surpassed $1 trillion after three weeks below that threshold. These price increases indicate a recovery in the cryptocurrency market.
Finally, the BTC bulls are getting what they want thanks to bitcoin volatility, but why now? BTC/USD has produced gains of more than 7% over the past 24 hours after drifting lower for months and residing in a narrow trading range in recent weeks.
The largest cryptocurrency is rewarding investors who refused to sell and penalizing shorts to the tune of about $1 billion as it reaches its highest levels since mid-September.
That liquidation figure demonstrates how the pattern changed abruptly and caught many by surprise.
However, little has actually changed behind the scenes; macroeconomic factors have not significantly changed from a week ago, and internal Bitcoin issues like miner strain have not improved.
Feds Change of Tune on Rate Hikes
The United States Federal Reserve topped the list of causes cited by analysts as to why the cryptocurrency market suffered more losses last week.
The worst-case scenario for risk assets was unshakable policy maintaining the U.S. dollar strong and rates racing higher for the foreseeable future.
However, over the past week, the effects of that strategy have spread to other economies, particularly Japan, which frequently intervened in its exchange market to support the faltering yen.
As the Fed runs out of options, speculation is growing about the likelihood of rate increases. After the increase next month, there are indications that the policy may start to reverse, making lesser increases in consecutive months before doing so completely in 2023.
Markets are therefore reacting favourably to any indication that the Fed is getting ready to moderate its hawkish attitude after a year of quantitative tightening (QT).
Bitcoin Volatility Drops
This month, the volatility of Bitcoin even decreased below that of certain significant fiat currencies, making BTC appear more reliable than risky.
Analysts had long predicted that the trend will experience a violent shift, and the cryptocurrency markets did not disappoint.
The Bitcoin Historical Volatility Index (BVOL), which has lately reached multiyear lows seen only a few times, indicates that Bitcoin still has ways to go before giving up this trait.
Weakening US Dollar
The U.S. dollar has been on a parabolic rise since the beginning of 2022, and it is just now starting to show indications of weakening. The U.S. dollar index (DXY) just reached its highest levels since 2002, and momentum might pick up again and push it considerably higher, hurting both risk assets and major currencies.
The DXY is currently under pressure, and its decline coincided with a return to form for Bitcoin and other cryptocurrencies. This points to a problem that proponents of Bitcoin are eager to resolve: a persistently high connection with conventional markets and an inverse correlation with the value of the dollar.
The correlation between Bitcoin and Gold is currently about 0.50, up from 0 in mid-August.
ECB Interest Rates Hike By 75 Basis Points
On Thursday, the European Central Bank increased interest rates once again and end a crucial subsidy to commercial banks, marking yet another significant step toward tightening monetary policy in response to an unprecedented rise in inflation. As expected ECB raises interest rates by 75 basis points.
In cautious trading on Thursday, European shares declined, and Credit Suisse sank after announcing restructuring plans. A rate hike from the European Central Bank was widely anticipated.
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