Bitcoin surged to a new high of $20,000 on Tuesday, but is still struggling to break out of its tight trading range. The digital currency has been stuck in a narrow range for the past week, with prices fluctuating between $19,000 and $20,000.
The world's largest cryptocurrency, Bitcoin, was trading at around $20,265.95 at 3:30 a.m. ET on Thursday, according to data from CoinDesk. That was up more than 7% from its price 24 hours earlier.
Bitcoin's recent surge in value has had a positive effect on the wider cryptocurrency market, with Ethereum (ETH) prices rising by around 7% to reach $1,389.75.
Since mid-June, bitcoin has been struggling to find direction, trading between $18,000 and $25,000. This comes after a crash in November that saw nearly $2 trillion wiped off the entire crypto market.
The recent market decline was driven by interest rate rises from central banks aimed at controlling rampant inflation, as well as a wave of bankruptcies and insolvency issues that have affected the crypto industry.
Crypto investors have been keeping a close eye on monetary policy this year, as digital currencies have been closely correlated to movements in the US stock market. Higher interest rates have put pressure on the S&P 500 and tech-heavy Nasdaq, which has had a knock-on effect on other risky assets including cryptocurrencies.
The U.S. Federal Reserve's 0.75 percentage point rate hike last week was a major event for crypto markets, according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno. This hike makes borrowing more expensive and could lead to a slowdown in the economy, which could have a negative impact on crypto prices. "This was broadly in line with what the market was expecting, so we've seen a lot of that sentiment priced in," Ayyar said.
Interestingly, bitcoin's rally on Monday occurred despite a fall in U.S. stocks, with the S&P 500 closing at its lowest level of the year. Stock futures rose on Tuesday, however, suggesting that the correlation between crypto and stocks may be weakening.
Investors are closely watching the U.S. dollar. The dollar index, which tracks the greenback against a basket of currencies, is up more than 18% this year. Bitcoin usually moves in the opposite direction of the dollar, so a strong greenback is typically negative for bitcoin. However, some analysts believe that the dollar index could be nearing its top, which could mark a potential bottom for bitcoin. This could be one reason behind bitcoin’s recent surge.
According to Ayyar, traders may be positioning themselves in anticipation of further market movement.
Since mid-June, when the crypto market hit recent lows, investors have been focused on a massive network upgrade to the Ethereum blockchain called the merge. This upgrade changes the method of validating transactions on Ethereum and significantly reduces the energy consumption.
In the lead up to the Ethereum network upgrade that was completed on September 15th, the price of ether, the native cryptocurrency of Ethereum, doubled. This was a far greater increase than the price of bitcoin during the same period. However, since the network upgrade was completed, the price of ether has declined.
As a leading independent research provider, TradeAlgo keeps you connected from anywhere.