Key Takeaways
- Bitcoin has recovered nearly 50% from its lows but still sits more than two-thirds below its all-time highs
- Some on-chain metrics show how modest this rally is compared with last year’s collapse
- Positive industry news remains scarce as the market awaits the Federal Reserve’s latest interest-rate decision at Wednesday’s FOMC meeting
Here’s a riddle to start: what is your profit or loss if an asset you hold rises 47% after previously falling 77%?
The answer is a devastating loss of 67%.
That’s the harsh reality facing Bitcoin investors who bought near the all-time highs at the end of 2021. While markets have started the year brightly, it’s important to keep perspective.
People often have short memories. With Bitcoin up nearly 50% from the post-FTX crash lows, the crypto markets are starting to buzz again. Hope can do powerful things — in this case, the hope that interest rates will ease.
The Federal Reserve Is Driving Bitcoin’s Price
I wrote last week about how this latest rally, if anything, underscores once and for all how much Bitcoin is trading like a high-risk asset.
Bitcoin was crushed last year as central banks around the world tightened policy in a way we hadn’t seen during Bitcoin’s existence. With cheap money from the past decade gone and attractive yields available in alternatives like Treasury bills, risk assets plunged.
The technology sector — highly sensitive to interest rates — cut jobs across the board: Meta, Salesforce, Twitter, Google and many others reduced headcount.
This most recent rally has arrived as inflation cools and investors renew hope that the pain of tight monetary policy might finally ease.
The Market Is Still Scarred
Although the outlook appears noticeably better than it did two months ago, the crypto market remains deeply wounded.
Bankruptcies are still unfolding — see last week’s Genesis filing — and many potential downside catalysts remain as the market digs through the chaotic aftermath of Sam Bankman‑Fried’s collapse. DCG, for example, still presents considerable uncertainty.
Despite the price run-up, there’s little in the way of positive, industry-specific news to justify it. As noted, this move is largely macro-driven, with investors focused on the Federal Reserve.
A few charts highlight how much pain still exists in the market. Despite the recent recovery, the realized net profit indicator — an on-chain metric that compares the price of coins recently moved with the price at which they were previously moved — shows how small the recent rally is compared with last year’s decline.
There’s no need to overcomplicate the picture. Despite the boastful narratives of “mainstream adoption” and “uncorrelated investments” that circulated during COVID, it’s as plain as day that Bitcoin is trading based on interest-rate expectations right now.
The chart below may be the most important in crypto of the past two years.
That small uptick at the end could reverse quickly depending on the Fed’s next move. It could also accelerate if results prove firmer than the market currently expects.
Either way, it’s clear what is driving markets at the moment.