Bitcoin and other cryptocurrencies were rising Wednesday, bouncing back after a deep selloff that began late last week. There is optimism that the worst is over, but a looming decision on monetary policy from the Federal Reserve remains a risk.
Bitcoin, the leading digital asset, was up more than 4% over the last 24 hours to around $38,000, according to data from Coin Desk. It had traded hands near $33,000 in the depths of Monday selling, but topped $43,000 less than a week ago.
Smaller peer Ether was similarly higher, up more than 4% to above $2,500. The token underpinning the Ethereum blockchain network bottomed out near $2,150 Monday, and was as high as $3,250 last Friday.
Bitcoin and Ether remain well off all-time highs of $68,990 and $4,865, respectively, reached in early November.
Smaller cryptos or “altcoins” like Ripple, Cardano, and exhibited similar price action: Up 3% to 5% from Tuesday in a steady rise from Monday lows. Widely popular “meme” token Dogecoin shot up more than 11%.
“After a few days of steadying around the $35,000 level, Bitcoin traders are growing confident that the bloodbath may be over,” said an analyst.
“Optimism is brewing after this broad market selloff for risky assets,”. If Bitcoin can manage to claw its way back to $40,000 over the next several trading days, that would be a very positive sign for the crypto verse. The bigger challenge for cryptos recently is that they have shown themselves to be essentially correlated with other risk-sensitive investments, like high-growth stocks in the technology sector.
In theory, Bitcoin and its peers should trade freely from mainstream financial markets. However, like with equities, the prospect of rising interest rates and less liquidity as a result of central bank policy has rocked the boat. The technology-heavy Nasdaq Composite index is firmly in correction territory, down more than 14% since the beginning of the year. Tuesday’s action in the digital asset space relative to stocks was “very promising for many crypto traders,”. While the Nasdaq dipped a further 2.3% on the day, cryptocurrencies held firm or rose.
The move higher Tuesday came despite a spate of further negative headlines, such as the International Monetary Fund reiterating that El Salvador’s use of Bitcoin as legal tender was a large risk. There was also news that Kazakhstan will keep crypto miners cut off from electricity for the remainder of January amid civil unrest. Meetings of the Federal Reserve’s monetary policy group—the Federal Open Market Committee (FOMC)—concludes, and Fed Chair Jerome Powell will make a statement. Anxiety over messaging from the central bank was central to Tuesday’s downturn in stocks, so investors will watch Powell’s statement closely.
“With Fed policy so acutely driving risk assets in recent weeks, it sets up an interesting day of communications ahead for the FOMC,” said Jim Reid, a strategist at Deutsche Bank.
Traders are expecting four interest rate increases from the Fed in the year ahead, with the first in March, before quantitative tightening in the form of the central bank reducing its balance sheet. Any indications that more or bigger interest rate hikes are ahead, or that tightening will happen faster than expected, could rock the stock market.
Bitcoin and other digital assets kept moving higher despite the volatility in stocks. If equities hit another rough patch in the face of the Fed decision Wednesday, all eyes will again be on the reaction in crypto. Continued relative strength would be good news.
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