Bitcoin prices came under pressure in 2022 following the collapse of algorithmic stablecoin terraUSD and subsequent bankruptcy filings by lender Celsius and hedge fund Three Arrows Capital.
Nicolas Economous | Nurphoto | Getty Images
Bitcoin skyrocketed on Friday, breaking through $20,000 again as the US dollar weakened and stocks soared.
The world’s largest cryptocurrency was last trading 8.7% higher at $20,974.00 after falling to its lowest level since mid-June earlier in the week. Bitcoin briefly jumped above $21,000 earlier in the day.
Other digital coins were higher, including ether, which gained about 4%. The total market value of the cryptocurrency jumped back to over $1 trillion.
The recent uptrend for bitcoin was prompted by a slight weakening of the US dollar, which has staged a stunning rally this year. The US dollar index, which measures the greenback against a basket of other currencies, was down about 1% on Friday morning.
US stock indexes closed higher on Thursday and futures were higher on Friday. Bitcoin is closely correlated with US markets, which often rise when stock indices do. Bitcoin also tends to rise when the dollar weakens.
Bitcoin has been trading in a range of around $18,000 to $24,000 since June and has failed to break this pattern.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said Friday’s rally could be a “bearish retest” of the price of $22,500-$23,000.
“As such, unless it convincingly breaks through and closes above this level, I would still think this is a bearish rally that could see more reach and downside,” Ayyar said.
Bitcoin has taken a hit this year, and is more than 60% down from its record high in November, when the Federal Reserve aggressively hiked interest rates to dull risky assets like cryptocurrencies.
The crypto market has also been hit by failed projects and high-profile bankruptcies that have spread across the industry.
Ethereum “merge”, focus on inflation
Crypto markets have been anticipating a major network upgrade for Ethereum called Merge, which proponents say will make the blockchain more efficient.
The merger is expected to be completed by mid-September.
Ahead of the event, the price of Ether, Ethereum’s native token, has far outperformed Bitcoin.
Financial markets are also looking for signs of a slowdown in inflation when the US CPI is released next week. And investors are also watching signals on the Fed’s rate hike path.
On Thursday, Fed Chair Jerome Powell said he was “strongly committed” to fighting inflation and hinted that more rate hikes could be on the way.
As inflation cools and Ethereum merger awaits, Yuya Hasegawa, a crypto market analyst at Japanese crypto exchange Bitbank, said Bitcoin could test $22,000 but also issued a warning.
“Given what some Fed members, including Chairman Powell, have said this week, too much optimism could be dangerous,” Hasegawa said in a note on Friday.