The largest cryptocurrency in the world has fallen by about 50% since early 2021.
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Bitcoin broke the $23,000 barrier for the first time in more than a month as hopes of a rate hike less aggressive than feared by the Federal Reserve sparked a relief rally in cryptocurrencies.
The world’s largest cryptocurrency rose to $23,800 on Wednesday, up 8% in 24 hours and trading at levels not seen since mid-June. It last traded at a price of $23,330.80, according to Coin Metrics data.
Traders take comfort in the prospect of softer policy action from the Fed at the next rate-setting meeting.
The effects of the US Federal Reserve’s tighter monetary policy have weighed heavily on risky assets such as stocks and cryptocurrencies.
Bitcoin is still down about 50% since early 2021.
“This is not necessarily the end of the crypto bear market, but a relief for Bitcoin is long overdue,” said Antoni Trenchev, CEO of cryptocurrency lender Nexo.
“Bitcoin is starting to make its way after a shaky month, and next week will tell,” Trenchev said.
The US central bank is expected to raise interest rates again at its next policy meeting, but economists predict a less aggressive increase this time of 75 basis points instead of 100.
Cryptocurrencies were touted as a source of value uncorrelated with traditional financial markets. But as institutional capital poured into digital assets, that statement didn’t materialize as the Fed started raising interest rates and traders fled stocks.
A rally above $22,700 means the cryptocurrency has now recovered from its 200-week moving average, laying the technical foundations for a “trend reversal,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.
“The market needs a little more certainty to slow the pace of the Fed rate hike,” he said. “Nevertheless, the short-term outlook for bitcoin is bullish and this week it could rise to around $29k.”
Meanwhile, traders are betting that the worst of an intense market contagion caused by liquidity problems at some major crypto firms has likely abated.
Digital currencies have been under tremendous selling pressure in recent months as the collapse of some notable companies caused ripple effects in the market. Terra, a so-called algorithmic stablecoin, dropped to near zero in May, triggering a series of events that eventually led to the bankruptcy of crypto firms Celsius, Three Arrows Capital and Voyager.
Elsewhere in crypto, ether rose more than 1% to $1,543.76, while other so-called “altcoins” were also higher.
The second-largest token is up more than 40% in the past seven days, fueled by optimism about a much-anticipated upgrade to its network, known as the ‘Merge’.
Developers now expect the update, which would move ethereum from environmentally dubious crypto mining to a more energy-efficient system, to be completed by September 19.
“Crypto mining has been highly criticized for contributing to climate change due to its energy-intensive nature and as wildfires rage in Europe and the United States, the promise that Ether transactions could be less damaging to the environment has seen a wave of interest,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.