Despite the drop, bitcoin was still trading 13% higher than it was seven days ago. While the reasons for the rebound and subsequent fluctuations are varied, they highlight the cryptocurrency’s sensitivity to macroeconomic conditions and industry-specific events, even if bitcoin occasionally behaves counterintuitively.
Late Tuesday, investor optimism led bitcoin, ether, and other cryptocurrencies to soar, despite concerns about a stablecoin crackdown and tepid Consumer Price Index (CPI). Riyad Carey, a research analyst at Kaiko, a cryptocurrency data firm, said in an interview with CoinDesk that bitcoin’s upturn was “a bit of a euphoric rally that regulatory issues have cooled off temporarily.” In the early part of the week, Darius Tabatabai, co-founder of Vertex Protocol, a London-based decentralized exchange, said that “we may have the makings of another bull market.”
The Decline
A day later, the markets turned wary and bitcoin dropped over $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 disgraced Terraform Labs co-founder Do Kwon, and a disappointing wholesale prices report suggesting that inflation remained stubbornly resilient.
Katie Stockton, founder of technical analysis-based research firm Fairlead Strategies, wrote in an email to CoinDesk that 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.”
Recovery
By Friday afternoon, investors seemed to have shaken off the latest discouraging news to push bitcoin just a few dollars short of $25,000 again. Cryptocurrencies continued to outperform equity markets to which they correlated for much of 2022. Ether (ETH), the second-largest cryptocurrency in market value, rose more than 12% over the past week.
There’s always a period when the regulators and lawmakers want to hear from the market that they’re going to impact
Edward Moya – Senior Analyst at Oanda
Edward Moya, senior market analyst for foreign exchange market maker Oanda, 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. The industry itself remains flush with interesting projects, he said. “There’s always a period when the regulators and lawmakers want to hear from the market that they’re going to impact,” Moya told CoinDesk in an interview. “But I haven’t seen anything that take 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.” However, Moya added that a lot of money might leave stablecoins for other types of cryptocurrency investments.
Regulations and Investment
Some observers believe that regulatory overreach could drive away investment and spook markets. Al Morris, founder of the decentralized publishing protocol Koii Network, said in an email to CoinDesk that “based on their unwillingness to come to the table, it’s clear that the SEC’s motivations of late are being driven by a desire to protect the financial incumbents – that is, Wall Street.” He added that overly harsh U.S. regulations could benefit other crypto hubs in Europe and Dubai.
Despite this, investors remain optimistic about crypto markets. They believe that the Federal Reserve will approve a second consecutive 25 basis point rate hike at its next Federal Open Market Committee (FOMC) meeting in March instead of returning to the more aggressive increases of 2022. They also hope that any economic contraction will be mild, a so-called safe landing that central bankers
