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Three factors behind the Bitcoin price growth — and why it took everyone by surprise

Igor Grigorchenko

News editor

Jan 12, 2023 at 04:58

Bitcoin has shown impressive growth for nine straight days for the first time since July 2021. BTC has risen about 8% in recent days. Bitcoin consistently surpassed the first $17,000 and then hit the $18,000 mark. But what’s going on? What are the factors behind this growth? Here are the three main ones.

Macroeconomics is the main reason for the growth

According to most analysts, the current growth is provided by expectations of a decline in inflation in the U.S. — today the agency BLS will publish the value of the Consumer Price Index (CPI). The index is expected to slow down to 6.5% year-on-year (7.1% in November). According to experts, the core inflation rate will amount to 5.7% (down from 6% a month earlier).

On the expectation of a CPI drop, there has been a frontal rise in all markets — the crypto market, Nasdaq and Dow Jones, oil and gold have also risen. If inflation slows (CPI declines), traders expect the US government to be able to stop raising its key rate. All global markets are in the green zone today because of this forecast.

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The key rate hike by the U.S. Federal Reserve is the most important factor that determines the amount of money in the economy (the higher the rate, the more expensive the money is, and the less money there is in the system). Successive rounds of raising this rate in the last six months have led not only to the collapse in the price of Bitcoin and the beginning of the crypto winter, but also to a significant decline in the stock market.

Last year, the U.S. government was forced to put the brakes on the market to combat high dollar inflation, which reached its highest level in 40 years.

Liquidation factor

Many traders expected Bitcoin to fall, so they tried to actively short this asset in recent days. As a result, the sharp growth of the asset took everyone by surprise. Such a strong impulse movement of the asset (about 5% in a couple of hours) often leads to a forced closure of positions of those who traded against the movement (this is a liquidation, or in other words, the loss of their deposit). A large number of liquidations indicates a clearing and a reversal of the market trend.

Within a day, the liquidations in the futures market totaled more than $245 million. The CEO of the hedge fund Moskovski Capital, Lex Moskovski, sarcastically noted on Twitter about the big losses of the traders’ colleagues that “Shorts are getting smoked royally.”

China activation factor

CryptoQuant analysts also point out that China is moving towards a return to the cryptocurrency market, despite the fact that since September 2021, any cryptocurrency transactions in this country are considered completely illegal. In the last month, China has become a major source of new capital inflows to the cryptocurrency market:

  • China’s first Bitcoin futures ETF has opened and attracted $79 million in initial trading.
  • Trading volumes on both the spot market and the derivatives market on China’s main cryptocurrency exchange, OKX, are steadily increasing.
  • Hong Kong has confirmed its course on the crypto industry — the financial secretary said the jurisdiction is ready to accept cryptocurrency companies from all over the world.

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