Bitcoin printed the big green monthly candle of January with a crazy gain of 43%. Bitcoin recorded the highest monthly ROI after 14 months and 49% YTD. A lot of factors participated in this rally and I will be covering Four Important factors today.
1. The US Inflation rate inflation
The US inflation is one of the major factors playing role in the current rally of digital assets, especially bitcoin. But still, the concerns are is it the start of a new trend or just another bull trap? Let’s discuss these factors and expected concerns.
On January 12, The US labor department published the inflation rates data that US annual inflation rate was recorded at 6.5% in January this year whereas, in December last year the inflation was recorded at 7.1%. This decline in the inflation rate made a positive impact on both Stock Markets as well as Crypto Market.
2. Interest rate
Another contributing factor could be the interest rates. FED raised the interest by only 25 basis points which means 0.25% annually, actually, it was expected earlier that FED could raise interest by 50 basis points if inflation remains uncontrolled. Fortunately, the last inflation numbers were a bit satisfactory. For those who are unfamiliar increasing interest rates is a legal practice that countries adopt to slow down the economy to control inflation in a particular country. Increasing interest rates make it hard to borrow and consume which as result lessens the demand and helps to lower prices.
3. UK Government purposed a plan for crypto regulations
The UK declares the plan to regulate Cryptocurrencies. According to the news posted on THE BLOCK on Feb 1st that the UK Government revealed a new regulatory framework to govern cryptocurrency in the country. This is one of the biggest factors that happened the last week. It could be surprising; giving a framework on crypto regulation is big news in the UK, it is because in Mar 2021 FCA the financial conduct authority of the UK Ban all Bitcoin ATMs in the country.
4. Genesis Trading
The fourth factor could be the Genesis Trading bankruptcy fear that traders thought already priced in and we won’t be coming below $16000 again. Genesis Trading used to provide a medium to institutional investors in Digital Asset Markets, for trading, borrowing, OTC, and hedge.
Traders lost confidence after FTX collapsed and the Gemini exchange had almost $175 million in investment in FTX.
For context, Gemini users started the protest and filed a lawsuit against the Winklevoss brother; the Winklevoss brothers own Gemini Exchange in the US and as a result, Winklevoss asked for its users’ money from genesis and Genesis is claiming that they had invested in FTX Earn feature and we lost that money. Genesis Also lost a heavy amount in Three arrow capital last year and this is how the whole ecosystem works. The collapse of one company is related to another balance sheet’s file knots.
These two factors are contributing current price hike and this rally could be a short-term move as a lot of short squeezes happened with this sharp rise in the price of bitcoin. Nothing has changed so far if we look at the bigger picture, Bitcoin needs so much big news to reclaim previous peaks. Playing with emotions aka fear and greed is whale’s favorite game. A lot of fear was in the market when FTX and Genesis filed for bankruptcy. For big players, bating against the market to generate heavy profits in the futures trades where social sentiments seem bearish could also be a factor.
Image from: Yahoo Finance, Bloomberg, US FED, and Statista.
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