What happened
After a rough start to the year, the cryptocurrency market jumped early on Wednesday as the markets rose and fears eased about the Federal Reserve dropping surprises on the market after Chair Jerome Powell’s testimony in front of Congress.
The dollar price of Bitcoin (CRYPTO:BTC) was up 3.2% in the last 24 hours as of 1 p.m. ET after jumping as much as 4%. Ethereum (CRYPTO:ETH) was up as much as 5.4% and is currently up 5.2%, Solana (CRYPTO:SOL) popped 8.1% and is currently up 7.7%, while Dogecoin (CRYPTO:DOGE) popped 7.2% and is at its high as of this writing. These don’t gain back what has been lost so far this year, but it’s a good start for crypto investors.
Image source: Getty Images.
So what
The sharp move higher for major cryptocurrencies started early this morning and has held across most of the market. This could be simply following the stock market, which is up slightly today and was also up yesterday along with the crypto market.
We are starting to get some data about the bigger moves in the market early in January and it shows why the market is down so far this year. According to CoinShares, net outflows from crypto investment products was $207 million in just the first week of January, which likely accounts for some of the decline in values.
Bitcoin Price data by YCharts
Outflows combined with liquidations of leveraged trades can cause the value of cryptocurrencies to drop rapidly. All of these factors seemed to be happening at once to start the year.
One of the biggest reasons the market overall was up is the fact that Federal Reserve Chair Jerome Powell indicated in Congressional testimony that the central bank would try to balance job and economic growth with the need to reduce inflation. The market was taken by surprise last week when minutes from a December Fed meeting showed its desire to raise rates early this year to combat inflation. Powell said he didn’t want inflation to become entrenched, but also said that economic growth was important to consider when looking at the speed of rate increases.
Now what
Cryptocurrency markets tend to magnify the stock market’s moves and today is no different. The S&P 500 and Nasdaq Composite are up less than 0.5%, but that move is much larger for even the biggest cryptocurrencies.
We may also be seeing some buyers come into the market who were looking for a buying opportunity and see lower prices as a good entry point.
With all of that said, investors should expect the crypto market to continue to be volatile as it matures. We’re still in a very speculative state for the industry as utility is built on top of cryptocurrencies, but long-term I still like the disruptive nature of the industry.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
