Bitcoin rally erases earlier 2022 rout

Bitcoin soared past $47,000 on Sunday and is holding its gains on Monday, effectively erasing its losses for the year.

Currently trading at $47,569, Bitcoin is changing hands 6% higher since Sunday morning and more than 16% above its price seven days ago.

The swing comes as more institutional investors show growing interest in crypto and as short-seller liquidations in the BTC derivatives market bolstered the coin. Bitcoin’s recent buoyancy also may signal the cryptocurrency could again rival the stock market’s performance this year.

“Bitcoin has closed above the short-term holder cost basis (around $46,000) for the first time in months,” Marcus Sotiriou, an analyst with the U.K.-based digital asset broker GlobalBlock explained in a Monday research note. “It is clear that $46,000 is a key pivot for the short-term direction for the market.”

Short-term holders acquired Bitcoin less than 155 days ago and purchased their coins during or after Bitcoin’s price peak in November 2021. Per Sotiriou, the recent price move above $46,000 mean a majority of these newer investors are no longer in negative territory.

In the last 24 hours, bitcoin has surged above a key technical indicator of seller resistance, its 50-week moving average, showing the uptrend might not be a flash in the pan.

There also appears wider interest in the cryptocurrency recently.

Last week, Goldman Sachs partnered with Galaxy Digital to initiate their first public BTC options trade. On Thursday, Larry Fink, chairman and CEO of BlackRock, acknowledged that his firm, a $10 trillion asset manager, was “seeing increased interest from our clients” around cryptocurrencies. The following day, Leumi, Israel’s second largest bank, announced it would offer crypto on its investment platform.

Digital asset investment products saw inflows totaling $139 million last week, the largest since the middle of December, according to a Monday report from digital asset firm, Coinshares. This includes crypto-related products such as those provided by Grayscale, 3iQ, and Proshares. The majority of inflows during the period (79%) came from Europe.

‘Divergent strength’

Since the quarterly expiry date on Friday for a bulk of some BTC options on the derivatives exchange, Deribit, short sellers have taken heavy losses, which has exaggerated the upward momentum, according to Yuya Hasegawa, a crypto market analyst with the Tokyo-based crypto exchange, Bitbank.

Hasegawa told Yahoo Finance that Bitcoin’s futures market had been accumulating short positions since the middle of March when the cryptocurrency’s price bobbed around $40,000. Over the weekend, the majority of liquidations in BTC derivatives contracts came from short sellers, who lost more than $375 million on Saturday and Sunday, according to crypto derivatives data provider, Coinglass.

While not the underlying reason for BTC’s surge, the liquidations fueled more upward pressure on the asset, Hasegawa added.

Bitcoin cryptocurrency coin and the green line of a graph are pictured in Kyiv on 29 July, 2021. (Photo by STR/NurPhoto via Getty Images)

Since dropping below $34,000 on January 24 — about 30% below its January 1 pricing — Bitcoin hasn’t traded at the same bullish pace it began last year.

Following record-breaking correlations with both the S&P 500 and Nasdaq Composite, the cryptocurrency has stayed between $35,000 and $45,000, performing much like other risk-on assets given tightening global monetary policy and high uncertainty surrounding Russia’s invasion of Ukraine.

But the weekend’s dynamic now suggests BTC might show “divergent strength” relative to other assets in this environment, according to Mike McClone, a commodity strategist with Bloomberg Intelligence. The S&P 500 and Nasdaq Composite are both down 5.3% and 10.2% year to date.

Created in the wake of the financial crisis, Bitcoin was promoted early on as an alternative payments network separated from the monetary order of governments. It’s been dubbed “digital gold” by some of its more ardent supporters.

Yet since the onset of the pandemic, the asset’s performance has largely benefitted from the economic stimulus by central banks, exhibiting head-spinning volatility and risk sensitivity — unlike a true safe haven.

While rising interest rates hurt risk-on equities, it’s not clear whether Bitcoin and the wider crypto market are as susceptible to the downward pressure, McGlone said in a Monday research note.

“The bottom line for Bitcoin is that it’s poised to outperform the Nasdaq 100 in most scenarios,” McGlone wrote. “The fact that crypto is well on its way to becoming the global digital collateral in a world going that way appears to be playing out in 2022.”