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What’s Behind the Recent Crypto Rally?

Several physical Bitcoin, from small to large, with a price uptrend arrow displayed above them.

Bitcoin and Ethereum have seen significant price gains since the start of 2023, and especially this past weekend. The predominant cryptos jumped over 12% beginning Friday, and more than 30% from December lows, bringing them over $23,000 and $1,500, respectively. While crypto winter has been in effect for over a year now, the end was not necessarily in sight before the recent leg up. What changed, and what may be driving the crypto rally and improved outlook? Read on to find out. 

The obvious catalyst of good news was the recent Consumer Price Index reading for December 2022, dropping 0.1% from the prior month. While it may not sound like much, more important was the year-over-year (y/o/y) calculation – a 6.5% increase in inflation, versus 7.1% y/o/y for November. While still a high reading, it signals a significant improvement, and suggests the Federal Reserve may not need to hike interest rates so aggressively throughout the remainder of 2023, if at all. Naturally, the portent of looser monetary policy, even if up to a year away, is positive for cryptocurrency, an asset class often seen as a hedge against inflation. 

Macro conditions aside, there’s also a crypto-specific reason for Bitcoin and altcoins’ new-year price performance. Difficulty, which measures how demanding it is for mining hardware to create a block (and thus new Bitcoin) on the network, rose to its all-time high today, reaching 37.59T. This represents more than a 5% increase in the last 24 hours, and more than a 10% increase over the weekend. Increasing difficulty tends to signify network strength, which means price typically follows – this has been consistently true throughout Bitcoin’s history. Because Bitcoin is the largest cryptocurrency, when it rises in price, altcoins usually follow suit. 

The crypto rally hasn’t shown signs of slowing down, though it’s not a certainty the bear market has ended just yet. Les Borsai, chief strategy officer at crypto asset manager Wave Financial, stated that “we might already have hit” the crypto market bottom, and cautioned that while “we could drop further…the macro environment is showing signs of easing and giving way to a possible market reversal.” While a Fed pivot could still trigger one last dip, the improved outlook for 2023 thus far has been a positive sign. If and once a final dip occurs, recovery historically follows. 

While it’s never completely clear where prices may go next, a new year often brings new price action, and 2023 has already lived up to this mantra. Ultimately, top cryptocurrencies tend to recover from drawdowns because their value proposition as decentralized digital money remains intact regardless of market movements. Both crypto traders and long-term investors who are saving for retirement can get more insight into crypto price action on the Bitcoin IRA crypto blog and news page.

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