Bitcoin prices on the rise as market players look to looser monetary policy and whale buying activity

Bitcoin rally continues, surpassing $21,000 for the first time since November

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Bitcoin has made a positive start to the new year, with the price of the largest cryptocurrency having strengthened by almost 26% since the beginning of January.

On Saturday, the price of bitcoin surpassed $21,000 per coin for the first time since November 7. It is, of course, still very far from the historic high of $68,990 it reached in November 2021. But it has given market “players” reasons to be somewhat optimistic.

The rally since the beginning of the year follows after a bleak 2022, which saw the crypto industry hit by bankruptcies and scandals, including the collapse of FTX, but also by the fall of the broader market, which was linked to the moves of central banks.

Analysts argue that there are a number of factors behind bitcoin’s rise in the new year, such as the increased likelihood of interest rate cuts, as well as purchases by large buyers known as “whales”.

New Year, new monetary policy?

Inflation is “heating up” and economic indicators reveal a slowdown in US economic activity. This makes traders optimistic that the Federal Reserve could reverse, or at least ease, its strategy of raising interest rates.

“Bitcoin seems to have reconnected with macroeconomic data and investors are putting the FTX collapse behind them,” comments James Butterfield, head of research at digital asset management firm, Coinshares.

“The most important macros that investors are focusing on are the weak services PMI and the downward trend in employment and wages data. This, combined with the downward trend in inflation has led to improving confidence, and comes at a time when bitcoin prices… are hovering near historic lows. Behind the rally is the prospect of a looser monetary policy due to weaker macro and lower valuations.”

The Fed raised lending rates 7 times in 2022, creating a “headwind” for riskier assets such as equities – and tech stocks in particular. In December, the federal funds rate rose to 4.25%-4.50%, reaching its highest level since 2007.

Bitcoin has been caught up in the “drama” surrounding lending rates as it is increasingly perceived by investors as a high-risk asset.

Cryptocurrency proponents have often touted bitcoin as a potential hedge asset to buy during periods of high inflation. However, bitcoin failed to hit that target in 2022, instead losing over 60% of its value as America and other major economies struggled with higher interest rates and a more expensive cost of living.

The “whales” buy bitcoin

The biggest buyers of digital currencies, known as “whales”, may be leading the recent bitcoin rally, Kaiko believes.

The crypto data firm disclosed in a series of tweets on Monday that trading volumes have climbed from an average level of $700 on January 8 to $1,100 today on the Binance exchange, showing the whales’ renewed confidence in the market.

The whales are investors who have collected large volumes of bitcoin. Some are individuals, such as the CEO of MicroStrategy Michael Saylor and Silicon Valley investor Tim Draper. Others are entities like market makers, who act as intermediaries in transactions between buyers and sellers.

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