Why is the crypto market up today?
Bitcoin (BTC) Volatility Finally Gives BTC Bulls What They Want – But Why Now?
After drifting lower for several months and spending the last few weeks in a small trading range, BTC/USD has delivered 24-hour gains of over 7%.
The biggest cryptocurrency has hit its highest levels since mid-September, rewarding those who refused to sell and penalizing shorts to the tune of about $1 billion.
The trend change came quickly and surprised many, which is evident from the liquidation statistics.
Behind the scenes, however, little has changed – macroeconomic conditions have not undergone major upheaval compared to a week ago, and internal problems for Bitcoin, such as mining, remain the same.
What could have caused BTC price action to potentially finally break out of a year-long downtrend?
Cointelegraph takes a look at three main factors influencing crypto market strength in the current environment.
The Fed may change its tune on rate hikes
Concerns focused on inflexible policies to keep the US dollar strong and rates rising higher for the foreseeable future – the worst-case scenario for risk assets.
Nevertheless, the past week has seen the results of this policy spill over into other economies, notably Japan, which made repeated interventions in the foreign exchange market to prop up the flagging yen.
At the same time, rumors are gathering about the prospect of rate hikes as the Fed runs out of room to maneuver. After next month’s hike, it is suspected that policy will begin to reverse, making smaller increases in subsequent months before reversing completely in 2023.
Important upcoming dates for the Fed are:
- 28 October: Price index for personal consumption expenditure (PCE).
- 1.–2. November: Federal Open Market Committee (FOMC) meeting, decision to raise interest rates
As such, any signal that the Fed is preparing to soften its hawkish stance is seized upon by markets weary from a year of quantitative easing (QT).
November’s FOMC meeting remains overwhelming expected to result in a rate hike of 0.75%, corresponding to September and July, according to the CME Group’s FedWatch Tool.
Bitcoin volatility snaps record lows
Analyzing data from Cointelegraph Markets Pro and TradingView, it becomes clear that BTC/USD has been too quiet for too long.
This is particularly visible in the Bollinger Bands volatility indicator, which has rarely been closer to each other in Bitcoin’s history and required a breakout for several weeks.
This month, Bitcoin volatility even fell below that of some major fiat currencies, making BTC look more like a stablecoin than a risk asset.
However, analysts had long expected the trend to undergo a violent change; and true to form, the crypto markets did not disappoint.
A look at Bitcoin’s Historical Volatility Index (BVOL), which has recently been at multi-year lows seen only a handful of times, shows that Bitcoin still has a ways to go to leave this characteristic.
“Quite funny that volatility has become so compressed and we’ve become so conditioned as market participants that the smallest 3% move feels like a 15-20% move,” William Clemente, co-founder of crypto research firm Reflexivity Research, commented.
Dollar eyes a new chapter
After one parabolic uptrend through 2022, the US dollar has only just begun to show signs of weakness.
Related: Analyst Puts Bitcoin Price at $30K Next Month with Outbreak
The US dollar index (DXY) recently hit its highest levels since 2002, and momentum may yet return to take it even higher – at the expense of both risk assets and major currencies.
Meanwhile, however, DXY is under pressure and its descent came in lockstep with a return to form for Bitcoin and altcoins.
This flags an issue that Bitcoin bulls are keen to shake – an ongoing strong correlation with traditional markets and inverse correlation with the dollar.
“Bitcoin now has a correlation with gold of around 0.50, up from 0 in mid-August,” trading firm Barchart revealed this week.
“While the correlation is higher with $SPX (0.69) and $QQQ (0.72), the correlations have decreased recently.”
Fellow analyst Charles Edwards, founder of crypto-asset manager Capriole, noted that Bitcoin macro price bottoms are often accompanied by increasing gold correlation.
Scott Melker, the analyst and podcast host known as “The Wolf of All Streets,” too confirmed a changing relationship between Bitcoin and Nasdaq.
“Nasdaq futures are down. Bitcoin is up. The short-term correlation between the two has disappeared in recent weeks. I’ll take it,” he summed up.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
