January closed with increases of up to 40% for Bitcoin and 150% for some Altcoins. The cryptocurrency market woke up in 2023, anticipating what was confirmed yesterday by Jerome Powell, the chairman of the US Federal Reserve: everything seems to indicate that it is heading towards a slowdown in rate hikes, which in the last year scared capital away from riskier investments, such as crypto, to turn to more solvent instruments.
Yesterday afternoon, after Powell’s speech, Bitcoin went from trading at US$22,760 to US$23,494 in just minutes. It is now worth US$23,810, accumulating a rise of 3.49% in the last day, and Powell’s decision to increase the interest rate by 25 points and place it in a range between 4.5% and 4.75% -what the market was expecting-, is a good sign for cryptocurrencies.
Ethereum (ETH), the second cryptocurrency with the largest market capitalization, stands at US$1679, a change of 6.3% from its price a day ago. In the last month, it grew 38%, although it is still far from reaching its all-time high of US$4868.
Among the main altcoins -the alternative tokens to bitcoins- BNB, the cryptocurrency of the Binance platform, trades at US$328.4. Cardano (ADA) is at US$0.4 and Solana (SOL) at US$25.05. Last month’s variations were 33.8%, 60.5%, and 124%, respectively.
Moreover, some market analysts believe that the worst part of another chapter of the crypto-winter is over. Part of the fall of tokens in 2022 is explained by the collapse of well-known projects, such as FTX, one of the most traded exchanges in the market. Other cases were those of Celsius and Luna, which sowed uncertainty in the sector.
However, others believe that a bullmarket is not yet coming. The Fed anticipated further rate hikes that “will be appropriate” to drive inflation to the 2% annual target. In other words, the U.S. government’s restrictive monetary policy has not yet ended. The Fed raised benchmark interest rates eight consecutive times since March 2022, including four consecutive 0.75 percentage point increases, to cool the economy and contain inflation.
Cryptocurrencies began a bull rally following the release of positive U.S. inflation data in December, which registered 6.5%. It was estimated at the time that it would lead to a “change of tone” by the Fed, which could begin a slowdown in rate hikes to address the generalized price rise. Some global investors began to discount that inflationary escalation reached a peak.
The total capitalization of the cryptocurrency market is US$1,110,659,686,335, a variation of 0.41% on the last day. They positively estimate that this figure will be sustained above US$1 trillion in the market. On the other hand, the volume traded in the last 24 hours was US$55,539,629,199.
An increase in a cryptocurrency’s market price indicates an increase in demand for the asset and that more people are willing to buy it at a higher price. Several factors can drive this increased demand. For example, in general, but also in Jerome Powell’s announcement case, positive news about the technology or project behind the cryptocurrency, a growing number of businesses and individuals accepting it as a form of payment, or increased interest from institutional investors. Growth may lead to increased market cap and higher returns for investors holding the assets.
The market price of a cryptocurrency is determined by the dynamics of supply and demand in the market, with the price increasing when the demand exceeds the supply and decreasing when the opposite is true. So far, the market is still skeptical because there’s room for speculation when important officials make such announcements.