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Crypto is facing headwinds even after a recent rally.
Dusan Zidar/Dreamstime
Bitcoin
and other cryptocurrencies rose on Friday, driven by a mix of macro factors and optimism over regulation. But analysts said the rally could be short-lived as the outlook for risk-sensitive assets remains difficult.
The price of Bitcoin has jumped 8% in the past 24 hours to $20,700, blowing past the key $20,000 level that has held back the biggest digital asset for much of September. Bitcoin is back in the $20,000 to $25,000 range it has largely held since mid-June, when a dramatic selloff drove it down from $30,000.
Several macro factors helped drive crypto higher in line with stocks, such as
Dow Jones Industrial Average
and
S&P 500
should rise Friday and snap a three-week losing streak. Since the influx of more mainstream investors into crypto in late 2020, Bitcoin and its peers have proven highly correlated with other risk-sensitive assets such as stocks.
The market was upbeat on Friday, even in the face of more central bank hawks, including a speech from Federal Reserve Chairman Jerome Powell, who described a Fed that would not budge on tighter policy until inflation was under control.
Also read: Bitcoin bombed in El Salvador. There is a warning for crypto.
Stocks and cryptos have been hit this year by an aggressive tightening of financial conditions by central banks, which have made historic interest rate hikes in an attempt to curb red-hot inflation. Higher prices both reduce demand for risk-sensitive assets and increase the risk of recession, which hurts risky bets like Bitcoin.
“The price [of Bitcoin] could test the mid-August high of around $22.00, but given what some Fed members, including Chairman Powell, said this week, too much optimism could be dangerous,” said Yuya Hasegawa, analyst at crypto exchange Bitbank.
Bitcoin was also a fall in the US dollar, which has risen to 20-year highs, increasing pressure on the digital currency. The US dollar index, which measures the greenback against a basket of six peers, fell more than 1% on Friday.
– In the short term, it is of course about macro and tight liquidity. In the longer term, however, the foundations are laid for future growth, says Mahesh Vellanki, managing partner in the Web3 venture firm SuperLayer. “It’s going to be a tough few months for Bitcoin and crypto. That said, Bitcoin has shown strength in that it hasn’t gone much further, as many have predicted, although another such big drop is not out of the realm of possibility. »
Another boost for Bitcoin came in the wake of comments from hard-line crypto Securities and Exchange Commission Chairman Gary Gensler, who said he supported giving the Commodity Futures Trading Commission (CFTC) regulatory authority over Bitcoin. Gensler said the CFTC should have more authority over tokens that are not securities.
“Bitcoin trades up in Friday’s Tokyo session as “The market welcomes SEC chief Gary Gensler’s comments,” Hasegawa said. “This is a bit of a plus for Bitcoin since Bitcoin futures are traded on the CME and thus outside the SEC’s regulation.”
But flashy short-term gains can’t change the fact that all crypto remains under pressure, with Bitcoin trading at less than a third of its all-time high as of November 2021. While many in the industry remain optimistic, much of the shine on crypto is away from late 2021, when El Salvador made the digital token legal tender in a project that has since bombed, underscoring the challenges of widespread adoption.
Beyond Bitcoin,
Ether
advanced 5% to near $1,700. Interest in the second-largest crypto has boomed in recent months in anticipation of a fundamental upgrade to the Ethereum blockchain network known as The Merge, with Ether’s gains blowing past Bitcoin in the months since its mid-June market bottom.
Altcoins, or smaller cryptos, also rose.
Solana
was up 8% and
Cardano
increased 5 percent. Memecoins also rose, too
Dogecoin
and
Shiba Inu
increases by 5% and 8% respectively.
Write to Jack Denton at [email protected]
