Crypto investors have been hungry for good news for months and last Friday they finally got some: Bitcoin suddenly soared over the $20,000 mark for the first time since the calamitous implosion of the FTX exchange last November.
This surprise rally continued upward in the middle of Sunday with Bitcoin trading around $20,600 after briefly eclipsing $21,000 on Friday. The weekend breakout comes after Bitcoin price has been stuck in a narrow band around $17,000 for the week.
Fans took to Twitter to celebrate the new uptick, which they are observing is Bitcoin’s biggest one-week gain in almost two years, and that the currency seems to have bounced back from FTX’s demise, which many consider an existential event for the crypto industry.
Meanwhile, the CEO of the world’s largest exchange, Binance, used the public meeting to mock the celebrity stock picker Jim Cramer, who has often been wrong about crypto and on January 9 suggested that it is a good time for investors to release their crypto positions.
It’s no surprise to see crypto boosters taking a celebratory lap after the rally, which has seen gains of over 20% for Bitcoin. What is less clear is the cause of the uptick and whether it is sustainable.
The most common explanation for Bitcoin’s pullback is positive macroeconomic news, particularly reports that inflation is easing. The price of cryptocurrencies has historically tracked trends in the larger economy with investors preferring good times, so Bitcoin’s recent gains are likely partly explained by the latest Consumer Product Index from the Department of Labor.
However, not everyone is convinced that Bitcoin’s upward momentum is here to stay. One analyst said Bloomberg that the recent trading pattern suggests that the price cannot exceed $21,500, indicating a “very overbought short-term reading. [that] challenge positive momentum.”
Meanwhile, one quant analyst told Block The recent rise of Bitcoin can be driven by futures traders looking to exploit short-term liquidity gaps at a time when some big players have left the crypto market. This could mean the recent rally is a temporary blip rather than generating more investor confidence. Analysts added, however, that they believe the market is nearing its end.
In any case, history shows that Bitcoin is very subject to momentum and has started a long-term rally at a time when many major investors have written off. Finally, Bitcoin’s fundamental value proposition – that it is a decentralized, infallible form of digital money – remains true even as the broader crypto market is going through its worst period in recent memory.
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