The hottest U.S. inflation in 40 years lit a fire under Bitcoin (BTC-USD) on Thursday, extending a rally that reversed some of the damage wrought by the “cryptocurrency winter” sell-off.
The sector has been shaken by the threat of higher interest rates, which the Federal Reserve is poised to do as early as next month. Yet Bitcoin went on a tear, decoupling from stocks in volatile trading on news that January’s inflation rate soared by an annualized 7.5%, the highest since 1982.
Bitcoin was whipsawed after the data, but added over 2% on the day to trade comfortably above $45,000, even as other coins like Ethereum (ETH-USD), Cardano (ADA-USD) and Solana (SOL-USD) lagged. Fundstrat noted that while January’s sellers appear exhausted, they “have yet to see sustained demand” for “blue chip” cryptocurrencies like Bitcoin and Ether.
Yet according to Michael Safai, managing partner at Dexterity Capital, a proprietary crypto-trading firm, Bitcoin has now garnered support above $43,000 from bulls, which has risen during the crypto market’s resurgence.
Until very recently, there’s been a tight correlation between technology stocks and cryptocurrencies. Safai told Yahoo Finance that link is a key driver behind crypto’s resurgence, following a multi-month rout during which Bitcoin halved its value after hitting a record near $69,000 — sinking to a low of $33,500 on January 24.
As of Wednesday, Bitcoin’s correlation with the Nasdaq (^IXIC) and S&P 500 (^GSPC) remain high (between 0.84-0.85) while its connection with gold is almost nonexistence (0.02) according to The Block Research.
Most importantly, Safair explained that unlike prior bouts of volatile trading, “we’re not seeing a ton of liquidations in the derivatives side of the crypto market.”
A critical leading indicator for shifting investor sentiment, the derivatives side of the crypto market shows both longs and shorts are taking a beating.
Of the more than $291 million in liquidated positions over the last 24 hours, a little more than half (59%) were long positions. Meanwhile, since 10 a.m. ET Thursday, the number of short positions cascaded, at a rate of 83% of total liquidations, for a total of at least $34 million according to crypto data provider, Coinglass.
Higher interest rates will likely damage the outlook for stocks, and in theory cryptocurrencies. Yet reading some of the key tea leaves in the market, the outlook isn’t entirely clear, according to Noelle Acheson, head of market insights with crypto asset prime broker Genesis Trading.
Long term holders, or wallet addresses holding BTC for a time-weighted average of over 5 months, now hold more than 80% of Bitcoin’s total circulating supply according to Coin Metrics. Historically, those investors have proven more likely to buy than sell when markets churn.
However, over a 30-day moving basis, long term holders now appear to be net sellers according to Acheson’s analysis.
On the other hand, BTC’s short term holders (around the 20% of wallets holding BTC) have acquired the asset in a short period of time. They still appear to shape the asset’s dynamic as a risk-on asset, “which remains a highly volatile investment thesis,” Acheson added.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
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Read More:Bitcoin defies Wall Street’s inflation sell-off, adds gains as cryptocurrencies dip
2022-02-10 18:52:55
