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in The price of bitcoin has plummeted for much of 2022. The contagion has rocked the entire cryptocurrency market along with broader macroeconomic issues and a tense geopolitical environment.
This week sudden recovery it happened and pushed the price of BTC to $ 24,200. It dropped slightly to around $ 23,200 at the time of writing, but is still just over 11% higher than at the start of the week.
Bitcoin no not the only cryptocurrency reverse the recent downward trend. The inversion of Ethereum, the No. 2 after Bitcoin, it was even stronger. He used the merger date announcement to bounce back. This is a long-awaited transition of the network from the Proof-of-Work consensus mechanism to a less energy-consuming Proof-of-Stake mechanism.
What are the reasons for the sudden rise in bitcoin?
Many attribute this week’s Bitcoin rally to investor optimism about the opportunity. reduce inflation. On July 14, Federal Reserve Governor Christopher Waller said the market was “a little carried away” when he talked about a 1% gain. Since then, optimism has crept in that the Fed tightening will not be as severe.
Much of the rally is due to the feeling that markets have a good understanding of Fed policies, rate hikes and quantitative tightening.
Kaufman, Head of Market Strategy at TheoTrade Trading Company explains. “What strong correlation between equity markets and bitcoin remains important “.
Other factors come into play when several crypto funds and leveraged companies have gone bankrupt in recent months, triggering a wave of liquidations across the space that have exacerbated the price plunge. Matthew Liu, co-founder of Origin Protocol, a decentralized financial platform and NFT, said that “the rise of Bitcoin was mainly due to Removal of leverage in cryptocurrency.
In recent months, we have seen the collapse of the Terra blockchain and the failures of major cryptocurrency companies such as Celsius and Voyager, as well as the cryptocurrency hedge fund Three Arrows Capital. “All these companies and systems were interconnected.. Their decline has largely affected the market. Now that this irresponsible leverage-based behavior has been eliminated to some extent from the system, some market participants run the risk of entering risk mode, ”Liu added.
Volatility and bitcoin go hand in hand, but this week’s rally was also accompanied by one decrease in volatility. In fact, the 30-day metric has dropped from 75% to 50% over the past seven days. However, it remains high and Bitcoin’s volatility is known for its sudden spikes. With the geopolitical climate remaining highly unpredictable and investors on their guard, there is no guarantee that this trend will continue. Liu says:
Volatility is expected to be significantly lower than in May and June, when we saw catastrophic corrections in bitcoin and ethereum. There will still be turbulence and unpredictability in the short and medium term, but the profound adjustments leading to massive capitulation are largely overcome.
What does this recovery mean for investors?
The big question tormenting investors is whether this is a sign that bitcoin has bottomed out, or whether safe haven is simply a safe haven option where prices temporarily recover from a long-term downtrend just for the good of resuming their decline. According to analysts, the market awaits the next meeting of the Federal Open Market Commission (26 and 27 July) and avoid large movements then. This appears to be the generally accepted opinion at the moment.
While the recovery has provided a welcome respite and the catastrophic sell-off is unlikely to repeat itself on the same scale, the geopolitical climate, uncontrolled inflation and the Fed’s stance on interest rates leave the country in limbo. great uncertainty. Even under the best conditions, it is nearly impossible to predict the near-term price dynamics of digital assets. This is especially true in this market environment.
While this price hike is a welcome haven for investors, Bitcoin still down 52% year-over-year, after the start of 2022, just over $ 46,300. It’s even worse when we compare the current price to its nearly $ 68,800 ATH reached in November 2021.
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