Bitcoin has increased by 25% amid suspicions that the cryptocurrency selloff in the latter part of last year was excessive and too quick, less than two weeks after cryptocurrencies reached their lowest point following the FTX collapse.
- The market is currently positive as Bitcoin has increased by 25% and Ether by 20% during the past week.
- The decline in inflation was a factor in the recent increase in the value of Bitcoin and other cryptocurrencies.
- Since the FTX collapse in November, the market has never crossed $1 trillion.
Bitcoin Gains Momentum
The Consumer Price Index (CPI) saw its first month of deflation since May 2020 in December, falling 0.1% from a month earlier. The price increase slowed from 7.1% in November to 6.5% overall, which is the lowest level since October 2021 and is in line with consensus forecasts. Although it has decreased dramatically from a 40-year high of 9.1% in June, inflation is still higher than the Federal Reserve’s goal rate of 2%.
Bitcoin reached a two-month high of $18,856, up 8%, when the Consumer Price Index (CPI) report last week revealed that inflation is slowing across most of the U.S. economy. Investors expected the Federal Reserve to reverse, or at least moderate, its rate hike policy. This suggests that Bitcoin is becoming macro and is no longer a hedge against inflation.
In addition, from 34.09 trillion on Sunday, the difficulty of mining bitcoin jumped by nearly 10% to an all-time high of 37.59 trillion. Mining becomes more difficult as a blockchain network grows, which shows increased activity. The most famous cryptocurrency was trading at $21,130.
Ethereum Upgrade is on Horizon
The native currency of the Ethereum blockchain network, Ether, had risen by more than 17%. This momentum has been assisted by macroeconomic factors and the upcoming network upgrade in Shanghai that will allow users to withdraw their staked Ether.
Dexterity Capital’s managing director and co-founder Michael Safai claim that “The global macro is still driving Bitcoin and Ether’s momentum, and the receding threat of inflation paired with the possibilities of rising debt and currency debasement.”
To put it simply, the Shanghai update follows “The Merge,” which, in September 2022, converted the Ethereum blockchain network from proof-of-work to proof-of-stake. The Shanghai renovation is anticipated to be finished in March 2023. The rise of other cryptocurrencies over the past two weeks, along with the advances in Bitcoin and Ethereum, contributed to the $1 trillion recovery of the cryptocurrency market.
Liquidation of Bitcoin Short Sellers
The liquidation of bitcoin short sellers has also contributed a significant portion of the most recent move higher. According to cryptocurrency derivatives aggregator CoinGlass, short bitcoin positions have been closed during the past seven days, covering the time frame starting immediately before last Thursday’s inflation report. Short positions totaling $455 million have been eliminated from the market because of net long holdings liquidated over the same time frame.
Bespoke Investment Group highlighted last Friday that Bitcoin has also “astronomically” breached its 50-day moving average, an essential technical mark that indicates the asset is approaching “severely overbought levels.” Overbought readings typically indicate that purchasing power has almost run out for nearly all other assets. Rallies in bitcoin frequently rely significantly on momentum. Jake Gordon, a research analyst at Bespoke Investment Group, described this most recent bitcoin bounce to Yahoo Finance as “a little weird.” “We’ve also noticed a recovery in [trade] volumes.” Safai also pointed out that there is still “an undertone of uneasiness” in the cryptocurrency industry, with investors fearing FTX may not be the final blow.
Conclusion
Investors now have reason to believe that cryptocurrency will thrive despite job losses and bankruptcies because of the market’s increase. Even the world’s largest bank, Bank of America, believes that cryptocurrencies are the future wave and a new type of payment since they will probably alter “how and when value is moved over the next 15 years.” Traders are confident about the resurrection of the crypto bull market as the markets recover, inflation cools, and indicators of economic stability return.
