3 Reasons Why Crypto is Breaking Out and the Rally Might Have Legs
The bullish breakout in crypto that started last week has seen investors beam with hope for a sustainable recovery. Bitcoin (BTC) and other cryptocurrencies struggled throughout 2022 amid internal and external uncertain events.
The crypto market’s initial pullback between November 2021 and April 2022 did not worry investors much, as it was seen as a natural retracement from all-time highs. However, the collapse of TerraUSD (UST) in May, a once thriving algorithmic stablecoin from the Terra Luna (LUNA) ecosystem, changed the course of the market from a pullback to a full-blown bear run.
Several companies exposed to UST could not survive the crash, including Three Arrows Capital, Celsius Network and Voyager. Many people lost their life savings, setting crypto years back.
Fast forward to November 2022, another crypto giant filed for bankruptcy amid a disastrous collapse. Sam Bankman-Fried’s FTX exchange faced a liquidity crunch after reports of an unhealthy financial relationship with its sister company Alameda Research.
Crypto turned bloody again, with Bitcoin price plunging to November 2020 levels at $15,466. Ethereum, the second-largest crypto, slipped below support at $1,100, hitting a four-month low of $1,075.
Crypto experts believe that 2023 is unlikely to be the year we see a massive bullish turnaround, with some predicting the crypto winter to last until December. However, there are some key factors behind the spike in crypto prices, especially among altcoins, since last week.
Easing Inflation Drives Investors Back to Crypto and Riskier Assets
Bitcoin price blasted above $17,000 on Monday, reaching a three-week high in what market watchers believe was a response by investors to signs of easing inflation. Altcoins also posted significant gains, with Ethereum increasing by over 4%.
The crypto market’s upward trend occurred just 24 hours after the Federal Reserve Bank of New York announced an anticipated inflation expectation of 5% for December, which was lower than the previously predicted 5.2%.
According to CoinDesk, the 5% reading indicates a decrease for the second month in a row, and the most recent reading is the lowest it has been since July 2021. The actions taken by the Federal Reserve to control inflation are still affecting the prices of both Bitcoin and ether.
Investors are banking on the expectation of declining inflation as a sign of a sustainable market recovery, which explains a spike in long bets on both ETH and BTC. The Fed also expects interest rates to be average around 5%.
Bitcoin Miners Break Multi-Month Selling Streak, As Crypto Prices Jump
Bitcoin miners were forced to continue divesting themselves of their Bitcoin holdings in 2022 as crypto prices broke out into the green. The implosion of FTX made matters worse for miners, forcing many to shut down their rigs due to ‘miner capitulation.’
William Clemente, the founder of Reflexivity, a crypto research platform, opines, “the heavy sell pressure from Bitcoin miners that has barraged the market for the last 4 months has finally subsided for now.”
On-chain data from Glassnode, one of the leading crypto analytics platforms, confirm insight into miner capitulation easing over a 30-day net position. Moreover, Bitcoin miner reserves hit a monthly high on January 8.
Extreme Fear Drives Crypto Price Recovery
Veteran investors believe you should buy when everyone is reeling from seemingly unending losses. However, this statement cannot be taken lightly, considering the havoc investors ensured in 2022.
According to Alternative.me, a platform that presents the Crypto Fear & Greed Index, the general market sentiment dipped back to the top of the most bearish bracket last weekend. The index holds at 26, roughly where it has been over the last month.
Despite the bullish move in crypto prices, altcoin volume remains relatively low based on-chain data from Santiment. Therefore, for the market to keep the uptrend intact, it would need support from investors, particularly the whales. Another report from CryptoQuant revealed that the whale selling pressure dropped in December, hinting at a “positive effect on market sentiment” over the coming months.
Altcoins To Consider for Quicker Returns
The uptick in crypto prices points to a possible market turnaround in 2023, but that is not guaranteed if 2022 is anything to go by. Therefore, investors must make deliberate decisions as they diversify their crypto portfolios.
New and upcoming crypto projects could offer a faster escape from the bear market run. The assets listed here are in their presales and performing exceptionally well ahead of their first exchange listings.
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Dash 2 Trade presale ends in less than 24 hours, as it makes its first debut as a tradable asset on Gate.io. Both teams confirmed the listing, with Gate.io welcoming the new assets with an Initial Free Offering and an airdrop worth $120,000.