Crypto prices surge via strongest rally in 9 months, but why?

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key takeaways

  • Bitcoin Is Back in the 20s, Ethereum Surpasses $1,500 and Altcoins Head North in Biggest Crypto Rally in 9 Months
  • Optimism that after cooler inflation data, the Federal Reserve will wind down higher interest policy sooner than expected
  • The next big day for crypto markets is February 1stscheduled tribeWhen the Fed will decide on the latest interest rate policy
  • Solana is up 130% since the start of the year, leading altcoins
  • Even memes are on the rise, with Dogecoin and the Shiba Inu doing the trick again
  • Some analysts fear markets are premature in pricing in Fed pivot

Crypto markets are doling out a heavy dose of nostalgia to start the year with their strongest rally in 9 months.

Bitcoin is trading near $21,000, Ethereum It is at $1,500 and altcoins are also aggressively giving upward power.

I took a market snapshot It was on this day last week, when the markets jumped to usher in the new year. A week later, the direction is the same – but the rally has been taken up a notch. The chart below presents the crypto price returns to start the year, a sea of ​​uptrends:

What is the reason for the rise in prices?

In the past year, Iinflation maybe changed Epidemic As the dirtiest word in our vocabulary. But it’s for good reason, as the world is in the grip of an inflationary crisis the likes of which we haven’t seen since the 1970s.

But over the past few weeks, a little bit of optimism that inflation has peaked has seeped into the market. This has prompted investors to bet that the Federal Reserve will hike interest rates sooner than previously expected. and the markets are doing something most people forgot they could do – they’ve gone UP.

Overall the market has gone up. The S&P 500 is up close to 5%. Crypto prices can throw a 5% candle in a matter of minutes, but the stock market is markedly less volatile, and a 5% amount is a strong move – there were only four occasions in 2022 when the market moved that much in a week.

Interest rates are important for crypto markets. Altcoins trade like leveraged bets on bitcoin, and bitcoin has been trading like leveraged bets on the S&P 500 over the past year. Bitcoin price has been on the rise since April 2022 interest rate hikes started getting free,

While there have been wobbles from the crypto market itself (LUNA Death Spiral, Celsius Crash and the staggering ftx debacle spring to mind), the key variable is undoubtedly the tight monetary policy that suppresses the value of all risk assets. Bitcoin will not be allowed to rise until the Fed pivots, and this past week has seen investors moving towards a stance that expects that pivot more than ever before.

Will it continue?

Next important date is February 1scheduled tribe, when the Federal Reserve will meet to decide the latest interest rate policy. These FOMC meetings, along with the monthly CPI report, have been a major driver in the markets over the past year.

I wrote five days ago How will we get the volatility towards the end of the week as we ran into the CPI report. That report came as expected, but reflected another month of falling inflation, which as previously described drove the markets higher.

However, the jump in prices is somewhat surprising considering the words that have come out of Fed Chairman Jerome Powell’s mouth so far. He has been adamant that a pivot is not coming and has also taken a dig at the market’s perceived immature belief that monetary policy will loosen again.

Indeed, there were plenty of false starts in the market last year, with investors repeatedly betting that the Fed was bluffing on the extent and speed of implementing interest rate hikes. This is part of the reason the subsequent move has been so fierce.

In fact, the chart below paints the picture better than a thousand words:

Altcoins make more moves

As we have seen time and time again throughout crypto history, high-beta altcoins are posting significantly higher gains than bitcoin. Of course, this comes from a lower base – the downside of a higher beta is that when times are tough, the pain is that much more severe, and altcoins certainly experienced that during this crypto winter.

The gains have been led by Solana, Layer 1 which has had a turbulent year even by crypto standards. I wrote a deep dive on this two weeks agoBut the coin was barely hanging inside the top 20, falling to third place behind Ethereum and bitcoin by one point.

A combination of repeated outages, top projects leaving for rival blockchains and a close relationship with the infamous Sam Bankman-Fried all contributed to Solana plunging 97% from its all-time high of $260, which is expected to end 2022. I was trading at $7.70.

But in typical crypto standards, a flip of sentiment led outright inexplicable Meme coin BONK has helped boost the coin, which is now trading at $23.40, having more than doubled over the past two weeks.

Meme Coin is enjoying gains across the board. This would normally be the part where I try to input some analysis about the why, but we know by now that there is no real pattern to the meme coin madness, so instead I’ll just list the returns. Shiba Inu is up 29%, while the daddy of them all, Dogecoin, has added 20% and is now trading at a market cap of $11.2 billion.

What will happen next?

For now, investors are enjoying the gains, just trying to survive throughout 2022. But looking at the market, while prices have moved up, volatility remains low and volumes are still a far cry from the pandemic.

The market has been unusually quiet since the FTX explosion, and this is the first real move of any significance. While the optimism is palpable, investors remain somewhat cautious and prices are still far lower than this time last year.

A 20% rally after a 75% drop is still equal to a 70% drop. So while the green candles this morning are beautiful for traders – and long overdue – the scale of the damage to crypto here is still dire. Institutional adoption has been a possibility scolded badly Still more likely to happen due to myriad scams dominoes to fall In FTX web of transition, and macro/inflation remains highly uncertain.

The past two weeks have brought some much-needed positive news not only for cryptocurrencies, but for the entire economy. Investors are celebrating with rising charts, but these are still uncertain times with lots of ups and downs.

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