The Key Takeaways
- In January, crypto banks are the best in almost a decade
- 68% of Bitcoin supply was in profit at the beginning of January, compared with 50%
- Correlation between Bitcoin and risk assets is close to all-time highs, with Federal Reserve’s interest rate policy continuing to hold the key
It’s important to celebrate the wins, huh? It was a huge win for crypto investors. After a year of arrests, bankruptcies and layoffs, the new year is off to a good start.
In fact, January is crypto’s best month since 2013. Let’s dig in and look at summary statistics from the banner month, and get the lay of the land as we turn the page into February.
Funding rate positive
Bitcoin opened January trading at $16,600. Bitcoin ended January trading at $23,100. This is a remarkable 39% gain.
The funding rate refers to the price traders pay for the right to short or long an asset on the futures exchange. A positive funding rate indicates that long trades have a dominant position and that short traders are receiving compensation for their positions. It also holds vice versa, which means that a negative funding rate indicates that short traders are paying long trades.
Although it’s not perfect, this is still a reliable indicator of market sentiment. It was positive for all but two days in January as bulls won the day.
Bitcoin traders are making a comeback
To sum up the crypto market’s fortunes for this month, it is worth looking at the supply in profit. It was a bitter end last year. Half of the 19.3 million Bitcoins in circulation ended up in profit.
Now, fast forward 31 days and the figure is up to 68%.
It is a long road to get back.
Yesterday, I wrote about the extent of the damage that 2022 caused. It is unlikely that a little tender love can turn the tide in the market’s favor. If the last few weeks are any indication, the industry is still plagued by bad news. There have been layoffs and bankruptcies.
Crypto is following macro more than ever before. This rally is caused by nothing else. This rally could be reversed or even accelerated by the US Federal Reserve meeting on Tuesday to present its latest interest-rate policy.
Still, correlations are sky-high
Don’t take my word for it. A quick look at the correlations at play here shows quite how much Jerome Powell is holding Bitcoin’s hand.
There’s an irony in there somewhere; a legion of crypto traders waiting nervously on the words of the chairman of a central bank to discover where Bitcoin, and the rest of the market, is headed. Was that a hedge narrative?
If the correlation between Bitcoin and the market was strong, you can bet your bottom that it is even more between Bitcoin and other markets. Ever since we transitioned into this new era of increased interest rates around April 2022, the Fed has been holding Bitcoin’s hand ever tighter, and Bitcoin has been holding the hand of every other crypto.
It’s been a stellar month for crypto, throwing up memories of the explosive runs it was capable of back in the good old days of the bull market.
The Federal Reserve announced its latest interest rate policy today. Markets could experience volatility. Depending on the tone of Chairman Jerome Powell, they could see an impetus to the latest rally and an abrupt curtailment.
Long-term, the space remains reeling from the many negative events of last year. Bitcoin trading as a levered wager on the Nasdaq will not be ideal.
Bitcoin remains highly speculative, despite the fact that its fundamentals are similar to commodities and big hopes for the future. The rest of crypto is just as speculative. Copy and paste the Bitcoin analysis to increase volatility a few notches.