Bitcoin closes for above US$ 20,000 for the fifth consecutive week and investors in crypto assets speculate on a rally that marks the worst could be over, after a dismal first half,
In this stage, cryptocurrencies would be poised for outperformance only “if stocks have bottomed”said Mike McGlone, an analyst at Bloomberg Intelligence.
The background of a very bad first half of the year -with falls of up to 25% for indices and up to 70% for cryptocurrencies- is due to an aggressive Federal Reserve determined to reduce high inflation in four decades, something that has been the source of volatility for all asset classes in 2022.
At the moment, the behavior of Bitcoin marks that is still within “a downtrend channel well-defined”, according to analysts at Glassnode, a company dedicated to the analysis of cryptographic and behavioral data in different blockchains, and that the activity of the network “suggests that there is still little influx of new demand”.
But at the same time, transactional demand has traded sideways or lower in recent weeks, suggesting that “only the stable base of higher conviction traders and investors remain.”
? Shares of cryptocurrency platform Coinbase soared 40% this Thursday after announcing a deal with Aladdin, BlackRock’s US investment and trading management platform https://t.co/9Qzrks7G3C
—Telam Agency (@TelamAgency) August 4, 2022
“The 2022 bear market has historically been a negative for the digital asset space”the analysts wrote in a note, however, noting that “after such a sustained period of risk-off sentiment, the focus is on whether this is a bear market relief rally or the start of sustained upward momentum.
July was the first month with sustained increases for C, Ether and other crypto assets.
Bitcoin is up 27% in the month, the highest percentage for a month since October, while Ether – the market’s No. 2 token – added 70% in its best monthly performance since January 2021.
Still, while cryptocurrencies have rallied in recent weeks, they are still well below their highs reached towards the end of last year. Bitcoin has been hovering around $23,000, up from nearly $69,000 in November.
“Cryptocurrencies have more volatility, so they are riskier, and it would make sense that investors need to rebuild confidence after the downdraft they have suffered”, said. Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis.
Still, he added that crypto investors are taking cues from stocks, but that the relationship works both ways as “they are risky assets.”
