Unseen in over a month, bitcoin posted its biggest rally and is already trading above $21,000 as a drop in the dollar renewed demand for risky assets that had been hit hard in recent months across the board. the world .
On Friday, the price of the world’s most famous cryptocurrency rose 10% to $21,300, outperforming most other tokens such as Ethereum, BNB, Solana, Shiba Inu, Litecoin, which are still posting a drop of just over 50% this year.
Bitcoin “jumped above $21,000 on what can be called an end to the dollar rally, which had been on a strong run for the last four weeks,” said Simon Peters, crypto markets analyst at eToro.
However, for the past few weeks the cryptocurrency has been stagnant “due to continued uncertainty over expected increases in interest rates from the Federal Reserve,” Peters noted.
The little appetite of investors in previous months has resulted in a drop in the price of the cryptocurrency in a minimum of two years, given the environment of uncertainty that exists in the financial markets due to the increase in interest rates, the problem in Europe, the increase in confinement in China due to COVID-19 and the economic perspectives in the world.
Just earlier this week, bitcoin dipped to $18,790, its lowest level since Dec. 11, 2020, according to data from Bloomberg, after investors took a bit of caution following China’s massive lockdown announcement and the closure of supplies from Russia to Europe, which raised fears of a more severe economic impact in that region.
In the midst of the COVID-19 pandemic crisis, the price of Bitcoin rose to just over $67,000. This all-time high was mainly due to two factors: first, because people remained confined to their homes and invested in cryptocurrencies, which were trending on social networks. Second, due to excess liquidity in the market, after central banks lowered their rates making money cheaper. Both factors increased the demand for bitcoin and boosted its price.
“Why the price of bitcoin was inflated was mainly because the big financial institutions lent money without interest rates so that the money would flow to big investors. So some of them diversified into cryptocurrencies and injected significant amounts of money. It was a cycle where, practically, month after month bitcoin gave you returns of 20% or 30%”, commented Dr. Oswaldo Reyes, tax and financial advisor, specialist in cryptocurrencies and in blockchain.
But like every cycle, it came to an end. When countries started the financial machinery and raised interest rates, investors began to adjust their purchases of cryptocurrencies, Reyes said.
This situation put pressure on the cryptocurrency, which is considered a risky asset, so amid economic uncertainty and geopolitical conflicts, it sank. Thus, since its historical maximum, registered in November 2021, the price of bitcoin has fallen around 70%
September the least favorite for crypto
Investors’ little appetite is compounded by something that specialists call the “September effect.” Since 2010, this has been one of the worst months for cryptocurrencies, and this year is expected to be no exception.
“In the last nine years, bitcoin has only had two positive Septembers, resulting in modest gains. On average, bitcoin loses almost 6% of its value in September, but many experts expect an even worse September this year, with it falling to as low as $17,000.
Investors are flocking to other cryptocurrencies like Ethereum, backed by the belief that the upcoming “merger” will create immense value for Ether. While its price started to rise in the last week of August, it is still down 8.61% in the last 30 days, as of September 7.
The document mentions that there may be several reasons why September has been a poor month for cryptocurrencies, specifically bitcoin, and some of those reasons are real and others are imaginary fear.
“While the Fed’s aggressive approach is certainly weighing on investor sentiment, we have also entered September, statistically one of the toughest investment months. Historically, September has been the worst month for stocks, with the S&P 500 falling more than 1% on average since 1928 as investors return from summer vacation, face rising back-to-school costs and start reaping tax losses before the end of the year,” Peters added.