Bitcoin and some other cryptocurrency groups rose in January, after experts positively pointed to economic data from the US market, which caused joy for cryptocurrency enthusiasts who suffered several months of strong currency depreciation in the sector in 2022.
As is usual in the economic world, there are always many factors that stimulate the rise or fall of cryptocurrency prices. So if you want to better understand the reasons driving Bitcoin higher, come with us!
Why is the market bullish?
Bitcoin rose in value by 25% between January 1 and January 17, according to Trading View data. This happens, in part, because of favorable market expectations for inflation and the interest rate set by the Federal Reserve, the central bank of America.
It should be noted that due to the war in Ukraine and the coronavirus pandemic, inflation has been high in the United States in recent years: about 7% in 2021 and 6.5% in 2022. However, the latest monthly data (from December, which was released Now in January) down 0.1% from the previous month, which encouraged economists.
In practice, low inflation encourages the Federal Reserve to stop raising – and even lowering – the interest rate, which currently ranges from 4.25% to 4.5% annually in the country. The higher the rate, the more the market contributes to bonds and other related investments, due to the search for more advantageous returns.
Why is bitcoin rising?
Right now, bitcoin and other cryptocurrencies are much riskier than fixed income investments, for example. This means that cryptocurrencies offer the potential for high returns while being more volatile than the average of other products on the market.
The great advantage of risky assets is the potential for high windfall gains, although there are no guarantees that this will happen. However, many investors allocate a portion of their equity (generally between 1% and 10%) in hopes of getting good returns from these assets.
Thus, with economists anticipating lower inflation in 2023 in the US, there are chances that the Fed will cut interest rates in the coming months. As a result, investors should increase their exposure to riskier products with higher potential for profits, such as stocks and crypto assets.
Should I be careful?
Just like the stock market, it is difficult to accurately predict the price movement of crypto assets. Many factors – economic, social and political – can influence the rise or fall of these assets, complicating the lives of analysts and disappointing those looking for quick and easy profits.
In this way, it is important to be aware of market signals when allocating resources in crypto or any other asset. It is also necessary to invest only part of the equity and keep a reserve for unforeseen or emergency situations.
In the case of bitcoin and other cryptocurrencies, it is not uncommon to see sudden spikes followed by sudden drops. This phenomenon, known as a “short squeeze,” is a future market movement that can mislead unwary investors into thinking that “what’s going on is going to keep going higher.”
Despite this, bitcoin is likely to continue rising in 2023, as membership in emerging countries is expected to increase in the coming months.
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