key takeaways
- Crypto markets jump on positive macro news to start the year
- Next inflation reading coming on Thursday, which will lead to further volatility
- Fight against inflation has a long way to go, investors are not out of trouble
- Solana is up 65% since New Year’s Day, but fell heavily earlier and problems remain
What followed was, to put it mildly, rather gloomy The year in cryptocurrency in 2022, the new year has jumped off to a positive start.
Bitcoin, Ethereum And all his other friends got wrecked last year, but nine days in 2023 are green on board. Let’s take a look at why this is the case, and whether we’ll see more of this, or if price action will return to 2022 pain.
Macro provides inspiration for crypto run
The single biggest reason for the boom in cryptocurrency this year is the same reason that dragged the entire space down last year: the macro.
The stock market has started the new year on a positive note. This comes as inflation readings around the world came in lower than expected. While there is still a long way to go in the fight against this huge cost of living crisis, the latest data has given investors hope that the central bank may wind down its policy of high interest rates sooner than previously anticipated. Huh.
After a decade of low interest rates, the world transitions to a new interest rate paradigm in 2022 as rates were raised aggressively in response to the inflationary crisis. The aim was to rein in demand and eventually drive up prices. As a result, all risky assets came back, and nothing is riskier than crypto. So, the market went down.
Solana is off the market
Of course, while macro is clearly the big driver here, unknown risks and events remain in the crypto space. Look no further than last year, when three events (Luna, Celsius and FTX) caused major falls and divergence from the stock market, which otherwise displayed an extremely high correlation with bitcoin.
To start the year, we’ve seen Solana outperform the crowd, opening the year at $10 and now trading at $16.50, printing a remarkable 65% return thus far.
i wrote a piece Last week Not a deep dive on Solana, but suffice it to say that the coin has major problems. Amid repeated outages, it has seen several large projects flee the blockchain and also suffer losses as a result of its close relationship with the infamous Sam Bankman-Fire. The chart below shows that while this rebound seems huge at 65%, it is still a drop in the ocean compared to the freefall experienced.
This increase over the past week can be at least partially attributed to bonk, the latest meme coin phenomenon that I also analyzed. Last week, We know not to read too much into Dogecoin so far, but nonetheless, the increase has at least eased some of the pain for Solana investors.
Is bitcoin continuing to rise?
As for the future, it’s anyone’s guess. The next big day is Thursday, when the latest CPI data will come out. If inflation in the US comes in lower than expected, you can expect a renewed rally in the market.
It’s really the same as last year: crypto markets will only rebound meaningfully if the Federal Reserve moves away from its currently-attractive interest rate policy.
In turn, the Fed says it will keep raising rates as long as inflation is rising. With the job market still tight and core inflation still holding steady (the headline rate has fallen partly due to energy prices, while core inflation is usually the number lawmakers focus on), there is still a long The path has to be decided.
Ultimately, 2023 will be decided in the crypto markets based on what happens with this tussle between the Fed and inflation. Unless the much-hyped pivot doesn’t really happen, it could continue to be a difficult time for the digital markets.