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The cryptocurrency market is feeling a ton of nostalgia at the start of the year, heading into its strongest rally in nine months.
Bitcoin is trading near $21,000, Ethereum is trading at $1,500, and altcoins are also rising aggressively.
I took a snapshot of the market on this day last week as the market rallied to ring in the new year. A week later, the direction is the same, but the rally is one step further. The chart below shows cryptocurrency price returns early in the year, a sea of upward movement.
For the past year I haveinflation probably replaced pandemic As the dirtiest word in our vocabulary. But there are good reasons why an inflationary crisis hits the planet like it hasn’t seen since the 1970s.
However, in recent weeks, a sliver of optimism has permeated the market that inflation has peaked. Investors are betting that the Federal Reserve will exit interest rate hikes sooner than previously expected. And the market is doing things that most people forgot they could do. Up.
Markets generally rose. The S&P 500 is up nearly 5%. While cryptocurrency prices can throw a 5% candle in just a few minutes, the stock market is decidedly less volatile and a strong 5% move. So much for the market in a week during a very volatile time in 2022.
Interest rates hold the key to the crypto market. Altcoins trade like leveraged bets on Bitcoin, and Bitcoin has traded like leveraged bets on the S&P 500 for the last year or so. Since the interest rate hike in April 2022, the price of Bitcoin has plummeted.
While there have been wobbles drawn from the crypto markets themselves (LUNA death spirals, Celsius crashes, and the staggering FTX debacle come to mind), the key variables have undoubtedly driven the value of all risk assets. It is a restraining and tightening monetary policy. Bitcoin will not be allowed to rise until the Federal Reserve pivots, and last week saw investors moving toward a stance expecting an earlier pivot than before.
The next significant date is February 1stst, when the Federal Reserve Board meets to decide the latest interest rate policy. These FOMC meetings, along with his monthly CPI report, have been the major drivers of the market over the last year.
I wrote five days ago about how to end the week with volatility when I came across the CPI report. It reflects that it lasted for another month.
That said, given what Fed Chairman Jerome Powell has said so far, the price spike is somewhat surprising. He has been adamant that no pivot is coming, even swiping to the market’s perceived premature assumption that monetary policy will ease again.
In fact, the market had many false starts last year, with investors repeatedly betting that the Fed was bluffing over the extent and speed at which rate hikes would be implemented. Part of it.
In fact, the chart below paints a better picture than a thousand words.
As we have seen repeatedly throughout the history of cryptocurrencies, high beta altcoins are significantly more profitable than Bitcoin. Of course, this comes from the low base. The downside of having a higher beta is that the pain becomes more severe during tough times. Altcoins have certainly experienced it through this crypto winter.
Profits were led by Solana, a layer 1 that has had a turbulent year even by crypto standards. It plummeted from where it held the second spot, barely hanging inside the top 20.
A combination of repeated outages, top projects leaving for rival blockchains, and close ties to the infamous Sam Bankman-Fried will see Solana plunge 97% from its all-time high of $260 to end 2022. traded at $7.70 over the period.
But by typical crypto standards, a reversal in sentiment led by BONK, a memetic coin that is completely inexplicable, helped boost the coin, which is currently trading at $23.40, doubling in the past two weeks. That’s it.
Memecoin is reaping the benefits across the board. This is usually the part where we try to enter some analysis as to why, but we know there’s no real pattern to the memecoin madness, so instead we’re just listing the returns. , Dogecoin, the daddy of them all, is up 20% and is now trading at a market cap of $11.2 billion.
For now, investors are reaping the benefits as they try to survive through 2022. However, looking at the market, prices have skyrocketed, but volatility is low and volumes are still far from pandemic levels.
The market has been uncharacteristically calm since the FTX implosion and this is the first real move of significance. From is still very restrained.
A 75% drop followed by a 20% rise is still a 70% drop. So while the green candle this morning is pretty for traders, it’s been long overdue, but the scale of the damage to crypto here remains serious. macro/inflation remains highly uncertain as more dominoes could still fall in the FTX web of contagion.
The past two weeks have been much-needed positive news, not only for cryptocurrencies, but for the economy as a whole. Investors are celebrating it with soaring charts, but these are still uncertain times with many twists and turns.
