Bitcoin and other cryptocurrencies were rising on 26 January, bouncing back after a deep selloff that began late last week. There is optimism that the worst is over, but a looming decision on monetary policy from the Federal Reserve remains a risk.
Bitcoin, the leading digital asset, was up more than 4% over the last 24 hours to around $38,000, according to data from CoinDesk. It had traded hands near $33,000 in the depths of 24 January’s selling, but topped $43,000 less than a week ago.
Smaller peer Ether was similarly higher, up more than 4% to above $2,500. The token underpinning the Ethereum blockchain network bottomed out near $2,150 on 24 January, and was as high as $3,250 last Friday.
Bitcoin and Ether remain well off all-time highs of $68,990 and $4,865, respectively, reached in early November.
Smaller cryptos or “altcoins” like Ripple, Cardano, and Solana exhibited similar price action: Up 3% to 5% from 25 January in a steady rise from 24 January lows. Widely popular “meme” token Dogecoin shot up more than 11%.
“After a few days of steadying around the $35,000 level, Bitcoin traders are growing confident that the bloodbath may be over,” said Edward Moya, an analyst at broker Oanda.
“Optimism is brewing after this broad market selloff for risky assets,” Moya added. “If Bitcoin can manage to claw its way back to $40,000 over the next several trading days, that would be a very positive sign for the cryptoverse.”
Cryptocurrencies came under pronounced pressure at the end of last week as Russia’s central bank proposed a ban on cryptocurrency mining and trading — in a country where both activities are relatively popular.
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Yet the bigger challenge for cryptos recently is that they have shown themselves to be essentially correlated with other risk-sensitive investments, like high-growth stocks in the technology sector.
In theory, Bitcoin and its peers should trade independently from mainstream financial markets. However, like with equities, the prospect of rising interest rates and less liquidity as a result of central bank policy has rocked the boat.
The technology-heavy Nasdaq Composite index is firmly in correction territory, down more than 14% since the beginning of the year.
Action in the digital asset space on 25 January relative to stocks was “very promising for many crypto traders,” Moya said. While the Nasdaq dipped a further 2.3% on the day, cryptocurrencies held firm or rose.
The move higher on 25 January came despite a spate of further negative headlines, Moya noted, such as the International Monetary Fund reiterating that El Salvador’s use of Bitcoin as legal tender was a large risk. There was also news that Kazakhstan will keep crypto miners cut off from electricity for the remainder of January amid civil unrest.
Wednesday, 26 January, could see a return to more volatility — or signal that digital assets can move higher again.
The two-day monthly meeting of the Federal Reserve’s monetary policy group — the Federal Open Market Committee (FOMC) — concludes, and Fed Chair Jerome Powell will make a statement. Anxiety over messaging from the central bank was central to Tuesday’s downturn in stocks, so investors will watch Powell’s statement closely.
“With Fed policy so acutely driving risk assets in recent weeks, it sets up an interesting day of communications ahead for the FOMC,” said Jim Reid, a strategist at Deutsche Bank.
Traders are expecting four interest rate increases from the Fed in the year ahead, with the first in March, before quantitative tightening in the form of the central bank reducing its balance sheet. Any indications that more or bigger interest rate hikes are ahead, or that tightening will happen faster than expected, could rock the stock market.
Bitcoin and other digital assets kept moving higher on 25 January despite the volatility in stocks. If equities hit another rough patch in the face of the Fed decision on 26 January, all eyes will again be on the reaction in crypto. Continued relative strength would be good news.
“If broader risk appetite takes a hit, I’d expect Bitcoin to suffer more, ” Moya said. “Whether that will see it test the crucial $30,000 region, only time will tell, but traders will be very relieved at what they’ve seen this week.”
This article was published by Dow Jones Newswires
