Why is Bitcoin going up? – Forbes consultant

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The price of Bitcoin (BTC) has been in free fall for most of 2022, with contagion rocking cryptocurrency markets along with broader macro concerns, along with a muted geopolitical climate.

This week brought a sudden relief rally, pushing Bitcoin’s price up to $ 24,200. BTC is back slightly at around $ 22,900 at the time of writing, but is still up nearly 12% from where it opened the week.

Bitcoin isn’t the only cryptocurrency to reverse the recent downward trend.

Ethereum, the second largest cryptocurrency in the world, was even stronger, coming out of the back of a date set for “The Merge”. This refers to the long-awaited transition of the network from a proof-of-work consensus mechanism to a less energy-consuming proof-of-stake mechanism.

Why is Bitcoin going up today?

While green prices have been a welcome haven for investors, even after the rebound, Bitcoin is still down 52% year-on-year, having entered 2022 trading at just over $ 46,300.

The price of BTC fell further from its all-time high of nearly $ 68,800 in November 2021.

Many attribute Bitcoin’s rebound this week to optimism among investors that inflation can be reduced.

Federal Reserve Governor Christopher Waller commented at an event in Victor, Idaho on July 14 that the market had “somewhat surpassed itself” by talking about a 1% rise.

Optimism has since crept in that the Fed tightening would not be as severe. “I support another 75 basis points (bps) hike,” Waller added.

Don Kaufman, chief market strategist at trading company TheoTrade, says there is now more certainty in the expectations of Fed shares, which is reflected in prices.

“The rally is largely due to the markets feeling that they have a good understanding of Fed policy, hikes and quantitative tightening,” says Kaufman. “The high correlation between equity markets and Bitcoin remains prevalent.”

There are other factors besides Fed stocks as well. Over the past few months, we’ve seen a number of leveraged crypto funds and companies go bankrupt, leading to a sea of ​​cascading liquidations across the space, further exacerbating the drop in prices.

Matthew Liu, co-founder of Origin Protocol, the decentralized financial platform and non-fungible token (NFT), commented that “the rise of Bitcoin is mainly due to the elimination of leverage in cryptocurrencies”.

In recent months we have seen the collapse of the main blockchain Terra and the insolvency of major cryptocurrency companies, such as Celsius and Voyager, as well as the cryptocurrency hedge fund Three Arrows Capital.

“These companies and systems were all interconnected and the downfall spread widely across the market. Now that these irresponsible leverage-based behaviors have somehow been eliminated from the system, some market participants are venturing into “risk on” mode, Liu added.

Bitcoin volatility

Volatility and Bitcoin go hand in hand, but this week’s price rebound is accompanied by a corresponding decrease in volatility, as the 30-day measure has dropped from 75% to 50% over the past seven days.

It remains high, however, and volatility in Bitcoin is known for sudden jumps. With the geopolitical climate remaining extremely unpredictable and investors remaining on the edge, there is no guarantee that the relatively calm waters we are experiencing will remain, even if the worst of the past year will not return.

Liu states that “volatility is expected to be significantly lower than in the months of May to June, where we have seen catastrophic corrections in Bitcoin and Ethereum. There will still be instability and unpredictability in the near medium term, but the profound corrections causing mass capitulation are largely in decline “.

What does Bitcoin’s rebound mean for investors?

The big question that investors face is whether this is a sign that the Bitcoin low is in, or whether the haven is simply a dead cat rebound, where prices temporarily rebound amid a long-term negative trend. to then resume the downward decline later.

Max Shilo, CoinLoan’s digital asset analyst, says it’s too early to tell and the market is still waiting for the next Federal Open Market Committee (FOMC) on July 26-27. “Until then, we are unlikely to see any major moves as the market awaits a decision.”

“Many people in the industry have speculated on Colombian sentiment towards the Federal Reserve, but until we know for sure, nothing is guaranteed,” says Shilo. “If we see less aggressive sentiment from decision makers, it could drive the price up in the short term. But this will not guarantee a continuous increase. Due to the current global volatility driven by a myriad of unprecedented events, anything is possible ”.

This appears to be the consensus opinion among the market right now.

While the rebound has provided a welcome respite and it is perhaps unlikely that the catastrophic wave of liquidations we saw among the major players in May and June will repeat on the same scale, the reality is that we are in unprecedented territory when it comes to the geopolitical climate, rampant inflation and the Fed’s stance on interest rates.

Anyone familiar with the industry knows that even at the best of times it is nearly impossible to predict the short-term price trends of digital assets. This is especially true in this market environment.

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