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What the Bitcoin Rollercoaster Means, and How To Navigate It

Bitcoiners have been quite lucky as the world’s most famous token has surged about 13% over the past seven days. But what’s behind all of this?

The world’s largest cryptocurrency by market capitalisation has reached yet another six-month high before sudden price retreats late Thursday – but things are looking quite optimistic.

Recently, bitcoin (BTC) was trading for over $24,557 – up almost 3.1% the past 24 hours, and experiencing a weekly high early Thursday, when BTC shot beyond $25,000 for the first time since August.

Besides the price drop late Thursday, the bitcoin price outlook is still looking pretty good. Bitcoin has traded for approximately 13% higher than it was seven days ago – and it’s because of investor optimism, and more.

Analysts have noted that bitcoin’s rebound from $22,000 since Valentine’s day indicates that crypto is sensitive to macroeconomic conditions and industry-specific events, even if BTC prices respond counterintuitively. While crypto has continued to outperform equity markets for the majority of 2022, we may see continuations of this trend, albeit slowly.

Despite ongoing anxieties regarding US regulator crackdowns on stablecoins and a slight increase in the Consumer Price Index (CPI), investor optimism sent bitcoin, ether, and other major coin prices to their most recent highs.

Darius Tabatabai, co-founder of London-based decentralised exchange Vertex Protocol, said that “we may have the makings of another bull market,” earlier last week.

But the market turned over its head soon after. As markets became wary due as the Federal Reserve remained hawkish over rate hikes, while the US Securities and Exchange Commission (SEC) announced a lawsuit against Terraform Labs co-founder Do Kwon, Bitcoin’s 6-month early Thursday high of $25,062 dipped overnight to a low of $23,522. 

Beyond bitcoin’s rollercoaster, this price fluctuation indicates that inflation is still here to stay.  

How investors are responding

According to Katie Stockton, founder of technical analysis-based research firm Fairlead Strategies, BTC’s “intermediate-term overbought conditions provide a headwind with important resistance around $25,200 nearby, which increases the likelihood of a short-term pullback. Support is near the 200-day MA $20,000.” 

As BTC has displayed price volatility, investors are keeping their assets locked for now.

Edward Moya, senior market analyst for foreign exchange market maker Oanda says that “after Bitcoin tested the $25,000 level and failed to extend higher, many active traders locked in profits. Appetite for risky assets might struggle over the short-term, which could support a Bitcoin consolidation as long as a regulatory crackdown does not take down a key stablecoin or crypto company.”

Bitcoin prices were quite close to the $25,000 mark on February 18th as investors kept pushing onwards. Meanwhile ether (ETH), the second largest crypto in market value has gone through a price jump of more than 12% over the past week.

What’s the bigger picture?

While recent price fluctuations indicate investor optimism towards crypto, some may feel uneasy upping the ante for their token portfolios.

However, Moya believes that the crypto industry will be driven to become more competitive, and a vast amount of interesting projects will arise from the US’s major push crypto regulation (and enforcement).

“There’s always a period when the regulators and lawmakers want to hear from the market that they’re going to impact,” says Moya. “But I haven’t seen anything that takes away from this market from continuing to grow, to see investment and to have projects done that could hopefully drive the use case argument for it,” he adds.

As for stablecoins, Moya says that a lot of money may leave the sector, opting for other kinds of crypto investments.

Meanwhile, other global competitors may now have their time to shine. If conducting business looks bleak in the US due to overly harsh regulations, businesses can now turn to settling and/or expanding to crypto hubs in other regions like Dubai, Hong Kong, and the EU.

Despite all of this, Moya says that “bitcoin resilience” has been “impressive”, as bond markets remain volatile, and uneasy news about crypto regulation circulates.

Responding to the next Fed rate hike, and more

While the Fed is tackling how to orchestrate a ‘safe landing’ – as central banks call it – from recovering from economic instability, investors anticipate that the Fed would add another 25 basis point rate hike at the next Federal Open Market Committee (FOMC) in March, in contrast to 2022’s aggressive increases of four consecutive rounds of 75 point rate hikes. 

James Bullard, St. Louis Fed chief – and one of the most hawkish Federal Reserve policymakers – said he expects economic growth to moderate this year and the unemployment level to return to a more normal longer-run level.

Investors also hope that any economic effects from any Fed rate changes would remain  minimal, fueling optimism about crypto markets.

“While forecasts of higher rates weigh down on the values of future cash flows, increasing global liquidity is helping raise asset prices,” Lucas Outumuro, head of research at blockchain analytics firm IntoTheBlock, wrote in a newsletter.

However, investors should keep caution and still monitor news and graphs accordingly. As US regulators are preparing to put more customer protection clauses into legislation, there’s other larger factors to consider beyond just price-watching. 

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