This week has been a wild ride for Bitcoin (BTC) as the largest cryptocurrency by market capitalization reached multiple six-month highs before retreating suddenly late Thursday, only to rally again. BTC was recently trading over $24,557, up 3.1% in the past 24 hours and off a weekly high early Thursday when it surpassed $25,000 for the first time since August. This surge in Bitcoin’s value is a sign of the growing interest in cryptocurrencies and the potential for them to become a mainstream form of payment. Investors are optimistic that this trend will continue and that Bitcoin will continue to reach new highs in the near future.
Bitcoin has seen a 13% increase in value over the past seven days, despite a drop on Thursday. The reasons for the rebound from support around $22,000, decline and then rally have varied and underscore the cryptocurrency’s sensitivity to macroeconomic conditions and industry-specific events. Investor optimism on Tuesday trumped concerns about a stablecoin crackdown and tepid Consumer Price Index (CPI) to send bitcoin, ether and most other cryptos soaring. According to Riyad Carey, research analyst at crypto data firm Kaiko, the upturn was “a bit of a euphoric rally that regulatory issues have cooled off temporarily.” Bitcoin’s sensitivity to macroeconomic conditions and industry-specific events shows its potential to be a viable investment option.
Darius Tabatabai, co-founder of Vertex Protocol, a London-based decentralized exchange, suggested earlier in the week that the market may be entering a bull market. However, a few days later, the market turned wary and bitcoin dropped more than $1,000 in a few hours due to hawkish remarks by Federal Reserve officials, the announcement of a U.S. Securities and Exchange Commission (SEC) lawsuit against Terraform Labs co-founder Do Kwon, and a disappointing wholesale prices report. This suggests that the market is still volatile and investors should remain cautious.
Bitcoin has recently tested the $25,000 level but failed to extend higher, leading to many traders locking in profits. This could lead to a short-term pullback, with support near the 200-day moving average of $20,000. However, the risk of a regulatory crackdown on key stablecoins or crypto companies could also lead to a consolidation of Bitcoin prices. According to Katie Stockton of Fairlead Strategies, there is an important resistance around $25,200 which could further increase the likelihood of a pullback. Investors should be aware of the potential risks and rewards of investing in Bitcoin.
Cryptocurrencies have continued to outperform equity markets in 2021, with Bitcoin just a few dollars short of $25,000 and Ether (ETH) rising more than 12% over the past week. Oanda’s Moya believes that the larger outcome of the new U.S. crypto regulatory push won’t be apparent for a while, allowing markets to sort themselves out. He also believes that the industry remains flush with interesting projects and that a lot of money might leave stablecoins for other types of crypto investments. Despite the regulatory push, the crypto market is expected to continue to grow and attract investment, driving the use case argument for it.
The US Securities and Exchange Commission (SEC) has been criticized for its regulatory overreach in the cryptocurrency market. Some observers fear that this could drive away investment and spook markets. Al Morris, founder of the decentralized publishing protocol Koii Network, believes that the SEC’s motivations are driven by a desire to protect Wall Street, and that overly harsh US regulations could benefit other crypto hubs in Europe and Dubai. As the SEC continues to increase its oversight of the cryptocurrency market, investors and entrepreneurs must remain aware of the potential implications of their decisions.
Crypto markets remain largely optimistic despite the Federal Reserve’s expected 25 basis point rate hike at its next Federal Open Market Committee (FOMC) meeting in March. Investors are hoping for a mild economic contraction, a so-called safe landing, that central bankers are seeking. Global liquidity is helping raise asset prices, according to Lucas Outumuro, head of research at blockchain analytics firm IntoTheBlock. Crypto markets remain optimistic that the rate hike will be followed by a return to the more aggressive increases of 2022, and that any economic contraction will be mild.
Bitcoin has been resilient in the face of bond market volatility and regulatory headlines. According to Moya, the main goal is to put consumer protections in place, and the market is getting used to this expectation. He cautions that the situation should be monitored week by week, as investigations may be launched in order to protect consumers. Bitcoin’s resilience in the face of these challenges is impressive, and it remains to be seen how the market will respond in the coming weeks.
