Text size
Bitcoin is trading around the highest levels since last summer after a big rally to start 2023.
Rutmer Visser/DreamstimeBitcoin and other cryptocurrencies moved higher Wednesday. After a roaring rally to start the year, cryptos are now mostly range-bound but key catalysts lie ahead and there is at least one sign that traders have more conviction than ever.
The price of Bitcoin has gained 1% over the past 24 hours to near $23,200, a price level around which it has been changing hands for much of the past few weeks. The largest digital asset has gained some 40% since the start of the year, marching back from near two-year lows notched after the collapse of crypto exchange FTX in November to trade around the highest levels since last summer.
“Bitcoin managed to recover from the lower bound of the current two-week-long range, but it is still struggling to pick a direction,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank. “The next big event will likely be next week’s CPI announcement, but multiple speeches by Fed members remain this week and the market should also remain cautious.”
Indeed, macroeconomic catalysts are likely to be the most critical factor for crypto prices. The rally in digital assets this year has happened in tandem with similar action in the stock market, with improving risk appetite among investors driving the Dow Jones Industrial Average and S&P 500 upward alongside Bitcoin.
Investors are optimistic that decades-high inflation is trending downward, which should allow the Federal Reserve—whose inflation-fighting interest-rate hikes were a major headwind for risk assets last year— to ease back on its aggressive monetary policy. The latest factor boosting risk sentiment was a speech from Fed Chairman Jerome Powell interpreted as dovish, with remarks from more Fed officials due in the coming days. Key consumer-price index inflation data will come next week.
With catalysts for Bitcoin ahead, and the crypto market largely on pause after big gains to start the year, investors will be looking for reasons to keep the rally going. A bullish sign is that the conviction of crypto holders—or HODLers, who Hold On for Dear Life—appears to be at record levels.
“Reserve Risk for Bitcoin recently fell to its lowest level ever (lower than the 2019 or 2020 low), this indicates that the HODLer conviction is close to record highs,” analysts at crypto exchange Bitfinex wrote in a report this week.
“Reserve Risk is a long-sterm cyclical oscillator that models the ratio between the current price and the conviction of long-term investors,” the Bitfinex analysts detailed. “The current price is the incentive to sell and the conviction in the ratio is a series of sub-metrics that factor in the opportunity cost of not selling. Lower the ratio, higher the conviction that investors have.”
That’s not a bad sign—though investors would be well-advised to exhibit caution. Despite impressive advances for the crypto market so far in 2023, there remain multiple signs that a new bubble is forming, with a weak fundamental and technical backdrop suggesting that the recent rally has been largely built on sand.
Beyond Bitcoin, Ether —the second-largest crypto—rose 2% to $1,675. Smaller cryptos or altcoins were also upbeat, with Cardano climbing 2% and Polygon advancing 3%. Memecoins were more muted, with Dogecoin and Shiba Inu both up less than 1%.
Write to Jack Denton at jack.denton@barrons.com