Bitcoin, the world’s largest cryptocurrency by market capitalization, rose 9.89% from Jan. 20 to Jan. 27, to US$23,003 at 4:30 p.m. on Friday afternoon in Hong Kong. Ether gained 2.26% in the same timeframe, to change hands at US$1,582.
“The rally is driven by a broader sentiment in the financial markets. The belief is that inflation has peaked and the economic slowdown will force the Fed to soften its stance on interest rates. This might result in 1 or 2 quarters without any rate hike and help the general available liquidity in the market,” Dinesh Goel, founder of play-to-earn ecosystem One World Nation told Forkast in a LinkedIn message.
“This, however, is coupled with a looming fear of an impending recession. The mixed signals are prompting investors to divert a part of their wealth to gold or Bitcoin,” said Goel, adding that Bitcoin’s rally is also driven by investors who see it as a store of wealth.
Bonnie Cheung, head of strategy at Web3 communications protocol Sending Labs, attributes the crypto price rally this year to both macroeconomic factors and the removal of what she called crypto tourists.
“Aside from the macros, where inflation fearmongers seem to have taken a backseat, don’t forget that while the “crypto tourists” have disappeared largely as a result of all the fallouts from centralized crypto finance players, the builders never stopped building,“ Cheung said in an email.
Kasper Vandeloock, the chief executive officer of quantitative trading firm Musca Capital, says the Bitcoin rally is due to short positions being liquidated and the industry recovering from FTX’s collapse.
“As you can see in the screenshot linked below, there have been quite some large liquidations and open interest wipes. Besides that, tech [equities] has been having some slight recoveries which has a strong correlation to crypto,” wrote Vandeloock.
Polygon’s MATIC was the week’s biggest gainer among the 10 largest non-stablecoin cryptocurrencies, up 14.4% on the weekly chart, trading at US$1.08.
The global crypto market cap stood at US$1.05 trillion on Friday at 4:30 p.m. in Hong Kong, up 7.58% from US$976 billion a week ago, according to CoinMarketCap data. Bitcoin’s US$443 billion represented 42.37% of the market, while Ether took up 17.9%.
Smart contract blockchains gain
The Threshold (T) token was this week’s biggest gainer among the top 100 coins by market cap listed on CoinMarketCap, having rallied 129% to trade at US$0.050 after Coinbase added the token to its listings roadmap.
Aptos’ APT token was this week’s second biggest gainer, having rallied 118% to trade at US$17.69. Fantom’s FTM had the third-best performance, up 53.5% to change hands at US$0.46.
“Aptos has been doing a great job of speed-building a vibrant community and playing catch-up to early comers such as Solana, perhaps even replacing it as the new Ethereum killer,” wrote Cheung.
“However, if you have successfully rode through the last two crypto market cycles, you know the two things you will look at first are the market capital vs fully diluted valuation (currently at 15.86%, meaning ~85% of APT tokens are still locked up), and the most active exchanges where the token is traded, which for APT is surprisingly not Binance but Upbit, one of Korea’s largest exchanges. These two factors will help you gauge if the pump has a second act.”
Vandeloock said it’s unclear what triggered Aptos’ rally, “but it later got a lot of traction from traders looking for volatility. Tens of millions of shorts also got liquidated in this leg up,” said Vandeloock, referring to the screenshot below that he shared with Forkast.
See related article: Cold comfort: Is Crypto Winter the right time to invest in Web3?
What’s in store next week?
Bitcoin’s relative strength index (RSI), a popular technical indicator for market analysts, reached 80 on the weekly chart, signaling that Bitcoin is “overbought.” One World Nation’s Goel said that investors should be mindful of this metric and that “we should expect price correction within the next 2 weeks.”
Vandeloock wasn’t quite on board with that view, saying that RSI is based on historical volatility and “at a moment of low volatility it adds little value to the overall events.” He said he does expect a downward move in the short term, but remains bullish in the mid to long term.
Goel said that investors should be mindful of the Federal Open Market Committee’s (FOMC) meeting at the end of January.
“The trajectory of interest rates will govern the movement in the crypto market to a large extent. How the US government handles the FTX scam and the impending allegations against Binance will also play a crucial role in the overall market sentiment,“ Goel wrote.
Sending Labs’ Cheung said that the crypto market is entering the accumulation stage of the four-year Bitcoin halving cycle.
“We’re hitting that up-ramp part of the four-year halving cycle. In the past, around 18 months ahead of the halving is when price starts to build out the bottom. This time, the 18-month period started in September 2022, when it was trading around 19K-20K,” Cheung said.
(Updates to change Bitcoin price comparison period in deck.)