Crypto investors have been hungry for good news for months, and they finally got some late Friday night. Bitcoin unexpectedly broke the $20,000 mark for the first time since the disastrous FTX stock market explosion last November.
The surprise rally continued mid-day on Sunday, with Bitcoin trading around $20,600 after briefly eclipsing $21,000 on Saturday. The weekend comes after the price of bitcoin remained in a narrow zone of $17,000 for weeks.
Fans took to Twitter to celebrate the latest rally, noting that it was bitcoin’s biggest one-week gain in nearly two years and that the currency appears to have bounced back from the FTX crash, which many considered an existential event for the crypto industry.
Meanwhile, the CEO of the world’s largest exchange, Binance, used the rally to mock renowned stock picker Jim Cramer, who has erred on the side of crypto on multiple occasions and suggested on January 9 that it was a good time for investors to exit crypto positions.
It’s no surprise to see crypto boosters on a celebratory ride after the recent rally, which represents a gain of over 20% for Bitcoin. What is less clear is the cause of the rise and whether it is sustainable.
The most common explanation for Bitcoin’s rally is a wave of positive macroeconomic news, especially that inflation is easing. Cryptocurrency prices historically follow trends in the larger economy, with investors more willing to jump on them when times are good, so Bitcoin’s recent gains are likely partly explained by the latest Labor Department consumer goods index.
However, not everyone is convinced that Bitcoin’s upward momentum is here to stay. One analyst said Bloomberg that recent trading patterns suggest that prices are unlikely to break above $21,500, indicating “deeply overbought short-term indicators [that] challenge the positive momentum.”
While one quantitative analyst said The block that Bitcoin’s recent surge may be driven by futures traders looking to take advantage of short-term liquidity gaps at a time when a number of major players have exited the crypto market. This could mean the recent rally is a temporary blip rather than a broader return to investor confidence. The analyst added, however, that he believes the market is near the bottom.
In any case, history shows that Bitcoin is highly susceptible to momentum, and that it has embarked on long-term rallies when many mainstream investors have written it off. Finally, Bitcoin’s fundamental value proposition, that it is a new kind of decentralized and unhackable digital money, remains true even as the crypto market lurches through its worst period in recent memory.
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