What happened
After a difficult start to the year, the the cryptocurrency market jumped early on Wednesday as markets rallied and fears that the Fed would release surprises on the market dissipated after Chairman Jerome Powell's testimony in front of Congress.
The dollar price of Bitcoin (CRYPTO:BTC) it was up 3.2% in the past 24 hours as of 1 pm ET after jumping as much as 4%. Ethereal (CRYPTO:ETH) rose to 5.4% and is currently up 5.2%, Solarium (CRYPT: SUN) appeared 8.1% and is currently up 7.7%, while doecoin (CRYPTO:DOGE) it busted 7.2% and is at its highest point as of this writing. These do not recover what has been lost so far this year, but it is a good start for crypto investors.
Image source: Getty Images.
And that
The strong bullish movement of the major cryptocurrencies began early this morning and has held for most of the market. This could be simply following the stock market, which was slightly up today and yesterday was also up along with the crypto market.
We are starting to get some data on the biggest moves in the market in early January and it shows why the the market is down so far this year. According to CoinShares, net outflows from crypto investment products were $207 million in the first week of January alone, likely explaining some of the decline in values.
bitcoin price data by YGraphics
Outflows combined with liquidations of leveraged trades can cause the value of cryptocurrencies to drop rapidly. All of these factors seemed to be happening at once to start the year.
One of the main reasons the market as a whole rose is the fact that Federal Reserve Chairman Jerome Powell indicated in his testimony to Congress that the central bank would try to balance economic and job growth with the need to reduce inflation. The market was caught off guard last week when minutes from a December Fed meeting showed a desire to raise rates early this year to combat inflation. Powell said he didn't want inflation to take hold, but also said it was important to take economic growth into account when looking at the speed of rate increases.
Now what
Cryptocurrency markets tend to magnify stock market movements and today is no different. The S&P 500 Y Nasdaq Composite they were up less than 0.5%, but that move is much larger even for the largest cryptocurrencies.
It is also possible that we will see some buyers entering the market who were looking for a buying opportunity and see lower prices as a good entry point.
All of this being said, investors should expect the crypto market to continue to be volatile as it matures. We are still in a very speculative state for the industry as the utility is based on cryptocurrencies, but in the long run I still like the disruptive nature of the industry.
This article represents the opinion of the author, who may not agree with the "official" recommendation position of a premium Motley Fool advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
