CoinLoan Weekly: Crypto soaring, BTC's best start since 2020, macro optimism

Price dynamics

BTC price

After three sluggish days at just above $17,000, BTC made an outstanding leap. Shooting past $18,000 on Thursday, January 12, was followed by a full day of trading close to $19,000. Then, the price soared above $21,000 on Saturday, January 14, and stayed close to the level through the weekend. Monday, January 16, took it to a higher high — $21,434.97.

The Thursday surge followed the release of December CPI figures by the Bureau of Labor Statistics. The data showed the first monthly inflation decline in almost three years — by 0.1% — in continuation of year-over-year moderation. The rate of annual increase has slowed to 6.5% against 7.1% in November. Following the release, all three equity indexes and digital assets moved upward. The Crypto Fear & Greed Index peaked at 52 (neutral) on January 15 but has since descended to fear at 45. The last time it hit 52 was on May 31, 2022.

As of this writing, BTC is changing hands at $21,339.51, with a 24-hour gain of +2.2% and 7-day growth of +25.0%.

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ETH price

ETH rocketed hand in hand with BTC, making comparable gains. After opening at roughly $1,270, it stagnated until Thursday, January 12, when it rose above $1,400 in the early hours. Saturday, January 14, pushed it to $1,564.10, and the price held firmly above $1,500 over the weekend. On Monday, January 16, it got another boost — in the evening, ETH approached $1,600, trading as high as $1,593.37.

A crucial Ethereum upgrade scheduled for March — the Shanghai hard fork — will enable network participants to unlock their staked Ether, an opportunity they have anticipated for months. Whether they will subsequently sell their coins or double down on staking remains to be seen. Opinions about the potential impact vary, with some experts predicting a downside move. Meanwhile, the number of shark addresses has increased by 3,000 since November 2022, supporting the current rebound.

As of now, ETH is worth $1,593.69, with a 24-hour rise of +2.8% and a 7-day jump of +24.1%.

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XRP price

Following the market leaders, XRP made progress that was significant, albeit modest in comparison. Starting at roughly $0.342 on Monday, January 9, it climbed past $0.365 on Wednesday, January 11, and above $0.377 the next day. The weekend began with a 7-day high of $0.407937, followed by fluctuations between $0.38 and $0.39. Finally, on Monday morning (January 16), XRP briefly soared above $0.4 again.

According to WhaleStats, XRP has become the second most popular crypto among the top 1,000 BSC whales, behind LYO. So far, technical analysts have detected more bullish price action against USDT than BTC. Aside from the general sentiment, the price may have reacted positively to the Flare Network airdrop, which distributed the first portion of FLR tokens on January 9. Flare, a layer 1 blockchain on EVM, is bringing smart contract functionality to Ripple.

At press time, XRP is trading at $0.392466, with a 24-hour rise of +1.8% and 7-day growth of +13.7%.

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Cryptocurrency news

January brings BTC's best start since pre-pandemic era

Bitcoin has shown outstanding performance this year, gaining over 28% in a turnaround after massive sell-offs. So far, its January success is comparable to the 2020 rally, when the coin surged by 31% before the pandemic hit.

Meanwhile, the overall crypto market cap has risen past $1 trillion, a level it saw before the FTX implosion. Along with Bitcoin, a gauge of the top 100 digital assets lost over 60% in 2022, raising questions about the future of the industry.

Interpreting the surge

According to Matt Maley, chief market strategist at Miller Tabak + Co., BTC's rocketing signals "a lot of froth" left in the market, and "investors continue to 'act' in a much less bearish way than they speak." Yet with softer CPI data as a prominent driver, investors wonder if risky assets have moved too far, too fast, as the Fed is still a long way from its 2% target.

Technical analysts note that the latest jump appears stretched. The coin's 14-day RSI (relative strength index) is at a two-year high above 90, while 70 is already regarded as overbought. Katie Stockton, co-founder of Fairlead Strategies, does not believe prices will likely surpass $21,500 due to "deeply overbought short-term readings [that] challenge positive momentum."

Doubts about sustainable momentum

Noelle Acheson, the author of the "Crypto Is Macro Now" newsletter, attributes the rise to FOMO – the "fear of missing out," which "is likely to play a role in how the market evolves from here."

Furthermore, Crypto Quant's Ki Young Jun told The Block that futures traders might have been exploiting short-term liquidity gaps. If this is the case, the rally should fizzle out soon, although "we're close to the bottom for sure." In the absence of several big players, BTC futures worth around $4 billion were bought early on Saturday, January 14.

Not out of the woods yet

There is plenty of uncertainty, and the jump could eventually peter out as a short squeeze. The industry is still facing challenges, with further FTX fallout expected. Fraud charges against FXT co-founder Sam Bankman-Fried and the debt woes of Digital Currency Group and its subsidiary Genesis may shake the market in the near future.

Optimism around inflation drives markets

The CPI print released on Thursday, January 12, provided uplifting news for many traders. After months of unfaltering hawkish pressure, inflation appears to be slowing down, with consumer sentiment improving at a higher-than-expected pace.

According to the University of Michigan, short-term inflation expectations in the US have plunged to the deepest low in almost two years. The year-over-year consumer price change of 6.5% in December is the slowest in over 12 months. This cooling down is bringing the Fed closer to 2% inflation, stoking hopes of moderation in its subsequent interest rate hikes.

Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, interprets the data as "another sign that inflation is heading in the right direction and [...] the peak is likely in the rear view." Yet the regulator may require other unequivocal signs of slowing, as "[...] it is still well above the Fed's target rate, and the Fed has remained adamant that they will keep rates high to bring inflation back to normal levels."

Following the encouraging news, the Nasdaq 100 stock index was on a six-day upward streak. Cryptocurrencies also performed well, "suggesting that crypto's correlation to macro is not going away anytime soon," according to Sean Farrell, Fundstrat's head of digital asset strategy. Furthermore, provided the Digital Currency Group avoids forced liquidations, "there is a high probability that the absolute bottom is in for crypto prices."

Furthermore, the inflation slowdown is not the only growth driver. Hayden Hughes, CEO of social-trading platform Alpha Impact, told Bloomberg, "Markets have plenty of positive momentum heading into the next FOMC meeting later this month." In particular, cryptocurrencies have reacted positively to the recovery of $5 billion in liquid assets from the troubled FTX exchange. Thus, although the overall macro pressure "is still bearish," last week gave the financial markets "plenty of factors to forget" it.