Bitcoin (BTC) is up 5% on Nov 10, and confidence is returning on the global macro outlook and the news that FTX started partially opening withdrawals for users.
Cryptocurrency and equity markets responded to consumer price index (CPI) data showing inflation of 0.4% for the month and 7.7% year over year, which was less than the expected rise of 0. .6% monthly and 7.9%. The news sent the Nasdaq up 6% and puts it on track for the biggest one-day gain since 2020.
After the volatility caused by the possible insolvency of FTX, the price of Bitcoin reacted to the positive news of opening withdrawals and the positive movement of the stock to increase $1,000 in minutes.
With volatility still likely amid the current FTX situation, there is still a sense of doom dwindling among crypto commentators, but some analysts believe the crypto market has yet to bottom out.
The outlook for the rest of Q4 remains hazy with some analysts still expecting 2022 to copy the 2018 bear market. At the same time, there is hope that this bear trend will fade for good by early 2023.
The crypto market has generally been positive, including Solana (SOL), which is up 20% since Nov. 9, even after losing 32.4% of the total value locked in its decentralized finance (DeFi) ecosystem.
Let’s examine three main factors influencing the strength of the crypto market in the current environment.
The Fed could change its tone on rate hikes
When Cointelegraph reported on why the crypto market saw further losses last month, the United States Federal Reserve was at the top of the list.
Concerns centered on unwavering policy keeping the US dollar strong and rates rising for the foreseeable future, the worst case scenario for risk assets.
At the same time, rumors are piling up about the prospects for rate hikes as the Fed runs out of room for manoeuvre. After November’s 75 basis point increase, policy is suspected to start to reverse direction, making smaller increases in the following months before reversing completely in 2023.
As such, any signs that the Fed is preparing to ease its hawkish stance are being seized upon by markets tired of a year of quantitative tightening (QT).
The December Federal Open Market Committee (FOMC) is currently expected to deliver a 50 basis point gain, not 75, according to CME Group’s FedWatch tool.
Unemployment data released on Nov 4 boosted bull confidence. By coming in higher than expected, the implication could be that rate hikes are having the desired effect and thus a pivot could happen sooner rather than later.
Bitcoin volatility hits record lows
Analyzing data from Cointelegraph Markets Pro and TradingView, it’s clear that BTC/USD has been too quiet for too long after hitting a yearly low below $16,000.
This is especially visible in the Bollinger Bands volatility indicator, which has rarely been this close in Bitcoin history and has been demanding a breakout for weeks.
Last month, Bitcoin’s volatility even dipped below that of some major fiat currencies, making BTC look more like a stablecoin than a risky asset.
However, analysts had long expected the trend to undergo a violent reversal; and true to form, the crypto markets did not disappoint.
A look at Bitcoin’s Historical Volatility Index (BVOL), recently at multi-year lows seen only a few times, shows that Bitcoin still has some way to go to abandon this feature.
“It’s quite funny that volatility has compressed so much and we’ve become so conditioned as market participants that the slightest 3% move feels like a 15-20% move,” William Clemente, co-founder of research firm cryptographic Reflexivity Research, commented.
The dollar contemplates a new chapter
After a parabolic uptrend throughout 2022, the US dollar is just beginning to show signs of weakness.
Related: Bitcoin Seller Exhaustion Hits 4-Year Low in ‘Typical’ Bearish Move
After parabolic uptrend throughout 2022, the US dollar is just beginning to show signs of weakness.
The US Dollar Index (DXY) recently hit its highest levels since 2002, and momentum may return to take it even higher, at the expense of risk assets and major currencies alike.
In the meantime, however, DXY is under pressure, with its decline occurring in unison with a return to form for Bitcoin and altcoins.
This points to a problem that Bitcoin bulls are eager to shake: a continued strong correlation with traditional markets and an inverse correlation with the dollar.
“Bitcoin now has a correlation to gold of about 0.50, up from 0 in mid-August,” trading firm Barchart revealed in October.
“While the correlation is higher with $SPX (0.69) and $QQQ (0.72), the correlations have decreased lately.”
Fellow analyst Charles Edwards, founder of crypto asset manager Capriole, noted that Bitcoin’s macro price lows are often accompanied by a rising gold correlation.
Overall, the crypto markets may still have volatile days ahead according to analysts, but the positive news of FTX resuming withdrawals is providing a nice boost.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, and you should do your own research when making a decision.