Why is the crypto market up today?

Why is the crypto market up today?

Bitcoin (BTC) Volatility Finally Gives BTC Bulls What They Want – But Why Now?

After falling for months and spending the last few weeks in a tiny trading range, BTC/USD has seen 24-hour gains above 7%.

Reaching its highest levels since mid-September, the biggest cryptocurrency rewards those who refused to sell and punishes the shortest to the tune of around $1 billion.

The change in trend came quickly and surprised many, as evidenced by this liquidation count.

Behind the scenes, however, little has changed – macroeconomic conditions haven’t seen major upheavals from a week ago, and Bitcoin’s internal issues, such as miner pressure, remain the same.

What could have caused BTC price action to finally break out of a year-long downtrend?

Cointelegraph examines three major factors influencing the strength of the crypto market in the current environment.

The Fed could change its mind on rate hikes

When Cointelegraph explained why the crypto market recorded further losses last week, the United States Federal Reserve was first on the list.

Concerns centered on unwavering policy that would keep the US dollar strong and rates rising for the foreseeable future – the worst-case scenario for risk assets.

However, over the past week, the results of this policy have spilled over to other economies, notably Japan, which has carried out repeated interventions in its foreign exchange market to support the weak yen.

At the same time, rumors are piling up about the prospects for a rate hike as the Fed runs out of room to manoeuvre. After next month’s hike, it is suspected that the policy will start to reverse, making smaller hikes in the following months before reversing completely in 2023.

The next important dates for the Fed are:

  • Oct. 28: Personal Consumption Expenditure (PCE) Price Index
  • November 1 and 2: meeting of the Federal Open Market Committee (FOMC), decision to raise rates

So any signal that the Fed is about to ease its hawkish stance is seized by markets weary of a year of quantitative easing (QT).

The November FOMC meeting is still massively is expected to lead to a 0.75% rate hike, matching September and July, according to CME Group’s FedWatch tool.

Fed Target Rate Probability Chart. Source: CME Group

Bitcoin Volatility Reaches All-Time Lows

Analyzing data from Cointelegraph Markets Pro and TradingView, it becomes clear that BTC/USD has been too quiet for too long.

This is most visible in the Bollinger Bands volatility indicator, which has rarely been closer together in Bitcoin’s history and demanding a breakout for weeks.

BTC/USD 1-day candle chart (Bitstamp) with Bollinger bands. Source: Trading View

This month, Bitcoin’s volatility even fell below that of some major fiat currencies, making BTC look more like a stablecoin than a risky asset.

However, analysts had long expected the trend to undergo a violent change; and true to form, the crypto markets did not disappoint.

A look at the Bitcoin Historical Volatility Index (BVOL), recently at multi-year lows seen only a handful of times, shows that Bitcoin still has some way to go to shed this feature.

“Funny enough that volatility has been so compressed and we’ve become so conditioned as market participants that even the smallest 3% move feels like a 15-20% move,” William Clemente, co-founder of the crypto research firm Reflexivity Research, commented.

Bitcoin Historical Volatility Index (BVOL) 1 week candle chart. Source: Trading View

The dollar eyes a new chapter

After a Parabolic uptrend throughout 2022, the US Dollar is only beginning to show signs of weakness.

Related: Analyst Puts Bitcoin Price At $30,000 Next Month With Breakout Expected

The US Dollar Index (DXY) recently hit its highest levels since 2002, and momentum could yet return to carry it even higher, to the detriment of risk assets and major currencies.

In the meantime, however, the DXY is under pressure and its descent has been accompanied by a return to form for Bitcoin and altcoins.

This signals a problem that Bitcoin bulls want to shake off – a continued high correlation with traditional markets and an inverse correlation with the dollar.

“Bitcoin now has a correlation to gold of around 0.50, up from 0 in mid-August,” trading firm Barchart said. revealed this week.

“While the correlation is higher with $SPX (0.69) and $QQQ (0.72), the correlations have been declining lately.”

Fellow analyst Charles Edwards, founder of crypto asset manager Capriole, noted that lows in Bitcoin macro prices are often accompanied by a rising correlation with gold.

BTC/XAU correlation chart. Source: Bar chart/Twitter

Scott Melker, the analyst and podcast host known as “The Wolf of All Streets,” also confirmed a changing relationship between Bitcoin and the Nasdaq.

“Nasdaq futures are down. Bitcoin is on the rise. The short-term correlation between the two has disappeared over the past few weeks. I’ll take it,” he said.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.