Key points to remember
- Crypto-banks record their best January in nearly a decade.
- 68% of Bitcoin supply showing profit, up from 50% in early January.
- The correlation between Bitcoin and risky assets is near all-time highs, with the Federal Reserve’s interest rate policy continuing to hold the key.
It’s important to celebrate victories, right? And wow, did cryptocurrency investors need a win. After a year filled with bankruptcies, arrests, layoffs and red cards, the new year has started well.
In fact, January is cryptocurrency’s best month since 2013. Let’s dig in and look at the month’s recap stats, and get the lay of the land as we turn the page into February.
Positive funding rate
Opening the month at $16,600, Bitcoin closed January at $23,100 for an attractive gain of 39%.
The funding rate is the price traders pay to buy or sell an asset in the futures market. If the funding rate is positive, it means long trades are dominant and long traders are paying short traders for the positions. The reverse is also true, meaning that a negative funding rate implies that short traders are paying long traders.
This means that, although far from perfect, it is a good indicator of market sentiment. Looking at the rate throughout January, it was positive on all but two days as the bulls ruled the roost.
Bitcoin traders are back in profit
The best way to sum up the fortunes of the crypto market this month is to look at the amount bid in profit. Things ended quite acrimoniously last year, with half of Bitcoin’s 19.3 million circulating supply in profit.
Fast forward 31 days and that number is now up to 68%.
The way back is long
Of course, I didn’t write only yesterday on the seriousness of the damage caused in 2022. This is not the case of a small soft element reversing the fortunes of the market. The industry is still beleaguered by bad news, with layoffs and bankruptcies far from over, if the past two weeks are to be believed.
Cryptocurrency, more than ever, simply follows the macro. There is nothing else causing this rally. And with the US Federal Reserve meeting this afternoon to outline its latest interest rate policy, the rebound could be reversed fairly quickly, or even strengthened further, in the words of Chairman Jerome Powell.
Correlations remain exorbitant
Don’t take my word for it. A quick look at the correlations at play here shows just how Jerome Powell holds the hand of Bitcoin.
There is an irony somewhere in there; a legion of cryptocurrency traders nervously awaiting the words of a central bank president to find out where Bitcoin and the rest of the market is heading. What was this story ?
And if the correlation between the market and Bitcoin was strong, you can bet your lower satoshi that it is even higher between Bitcoin and the rest of the market. Since we entered this new era of interest rate hikes around April 2022, the Fed has increasingly been shaking hands with Bitcoin, and Bitcoin is holding hands with all other cryptocurrencies.
Final Thoughts
It was a stellar month for crypto, reminiscent of the explosive runs it was capable of in the good old days of the bull market.
With the Federal Reserve announcing its latest interest rate policy this afternoon, markets could see some volatility, with momentum to this latest rally, alongside a sharp cut, both on the charts. depending on the tone that President Jerome Powell takes.
In the long term, the space is still reeling from the many negative events of the past year, and trading Bitcoin as a leveraged bet on the Nasdaq is less than ideal.
Despite commodity-like fundamentals and big dreams for the future, Bitcoin remains a highly speculative asset for now. What about the rest of the cryptocurrency? Simply copy and paste the Bitcoin analysis, while increasing the volatility by a notch (or three).
