After months of declining price, Bitcoin entered the bullish wave when it broke above the $16,000 mark for the first time in January 2023. The flagship cryptocurrency has since steadily surged.
Will the rally continue?
Bitcoin eventually closed the first month of the year at around $23,000. Even if the price remains more than 60% below their peak in 2022, January’s uptick sparks fresh hope of Bitcoin’s recovery.
Glassnode’s data shows that in mid-January, the number of short liquidations reached an all-time high, a factor that drove up price. But then the future market has shifted to longs. As of the 30th of January, Glassnode reports that 51.46 % of open interests are long positions.
“Across both perpetual swap, and calendar futures, the cash and carry basis is now back into positive territory, yielding 7.3% and 3.3% annualized, respectively. This comes after much of November and December saw backwardation across all futures markets, and suggests a return of positive sentiment, and perhaps with a side of speculation.”
The Bitcoin Pump
On-chain data from Glassnode also suggests a turn from previous losses to “unrealized profits” among investors under the price’s recovery.
During the crypto market downturn in 2022, only investors from at least 2017 can potentially gain profits while all investors from 2018 endured unrealized losses. However, those who were at loss are now back into unrealized profit under the recent rally’s push.
The crypto market is off a bright start in January after a rough 2022 when Bitcoin crashed by 65%. Altcoins are also back green. Ethereum, the leading altcoin by market capitalization, surges above $1,500 while BNB surpasses the $300 mark.
The price of Bitcoin exhibits high volatility. Bitcoin has undergone explosive rallies followed by bouts of dramatic losses in its brief history. The Bitcoin price reached an all-time high of whopping $69,000 in November 2021, before falling to around $48,000 by the end of the year and continuing to plunge into 2022.
Bitcoin’s price dipped below $16,000 at one time last year when the market was plagued by terrible news, including the collapse of LUNA (Terra) and the demise of the crypto exchange FTX. These factors drove away most of the investors and the crypto market has since experienced a prolonged crypto winter.
Expectation For Lower Interest Rates
Several analysts suggest that the rebound of Bitcoin and altcoins is likely linked to anticipation that central banks will ease monetary policy this year. The US inflation data released on Jan. 12 showed a modest decline compared to the previous month.
The US Federal Reserve (Fed) will have the first FOMC meeting from Jan. 31 to Feb. 1, which will eventually reveal whether the Fed continues to raise interest rates or not.
This issue arose in the wake of the Federal Reserve’s decision to raise interest rates seven times during the course of the previous year in an effort to combat inflation. Inflation in the US has begun to fall as we approach 2023. Many economists believe that the Fed should ease monetary policy while still containing inflation and minimizing the possibility of a recession.
The Fed is expected to continue reducing the rate of interest rate hikes in its coming meeting. However, since inflation rate is still far from Fed’s target, the market is betting almost certainly on the possibility of the Fed applying a rate jump of 0.25 points at this meeting. It could possibly happen after the Fed decreased to 0.5 points at the December meeting.
Buying activity from investors, an increase in the difficulty of mining Bitcoin, and investor excitement around the half of the Bitcoin supply that will take place in 2024 are all additional factors that may raise the price of Bitcoin. Investors anticipate that each halving will result in a reduction in the total number of Bitcoins available for purchase.