After 2022 ended on a rough note with little hope of a resurgence in 2023 due to macroeconomic headwinds, the start of the new year surprised the bears with spikes in Bitcoin (BTC), Ether (ETH) and altcoin prices. rice field. A period of sparse crypto market volatility appears to be coming to an end with an upward breakout.
Some altcoins such as Lido (LIDO), Solana (SOL), and Cardano (ADA) have seen particularly notable gains. The main factors driving the surge of these coins are the upcoming Ethereum Shanghai update (for LIDO) and the negative funding rate of the futures market, especially his SOL. Negative interest rates mean most traders are holding his positions short, giving whale buyers an opportunity to execute their stop losses. The funding rates of several other tokens continue to be subject to short-term squeeze.
Additionally, Degen Gamble, which was put on the back burner after FTX collapsed in November 2022, has resurfaced in the New Year. Technically, altcoin market caps have crossed key technical resistance levels as bullish momentum builds.
The sustainability of the bull market is questionable as the broader trend remains bearish, but an uptrend that has just begun could bring some pain to late sellers.Affects Altcoin Prices5 The two main factors are:
Job market data revive soft landing hopes
Contrary to the Dow’s estimate of 200,000 nonfarm payrolls and market expectations of a slowdown, December 2022 labor market data showed employment increased by 230,000 or 0.2%.
A strong job market acts as a risk-on-rally catalyst, contrary to popular recession claims. It helps build on the bullish sentiment that has been set or back to the negative sentiment.
Market confidence in a soft landing could increase if the December CPI falls below 7.7% and inflation continues its downtrend. However, if inflation picks up in December, there is a risk of a sharp correction as the chances of a rate hike by the Federal Reserve increase towards the end of January.
Traders look for perpetual swaps with negative funding rates
As physical trading volume and liquidity on cryptocurrency exchanges dried up towards the end of the year, the futures market became a major influence on price movements, especially during the holiday season. A contrarian price response to a crowded trading position is very likely.
Solana’s recent price spike is clear evidence that prices are skyrocketing. The $200 million SOL shorts were liquidated over the weekend as they surged more than 27% from their Jan. 6 low of $13.According to independent market analyst Alex Kurger, “SOL still has some headroom, but the outperformance stage is almost behind.”
Solana’s momentum may be coming to an end, but the majority of traders still hold onto a number of altcoins such as Apecoin (APE), Tron (TRX), Bitcoin Cash (BCH), and Gala Games (GALA). I’m running out. This gives buyers an opportunity to push prices higher and seek liquidity for perpetual swap seller stop losses.
Pump the meme coin and then throw it away
In the first week of January 2023, a Solana-based meme coin named BONK experienced a 25x surge. This rise epitomized the depraved gambling ethos that prevailed in his 2022 bull market from 2021. Bear markets, on the other hand, tend to encourage caution among traders.
Despite BONK’s eventual price collapse, the successful pump-and-dump-out of such meme coins suggests that some traders are still indulging in risky play.
positive technical breakout
Altcoin market capitalization topped the 50-day exponential moving average (EMA) at $465 billion. Buyers are likely to set his 100-day EMA at his $563 billion, with an expected average gain of 20% across the token. Technical traders try to tap these critical levels before the reversal begins.
The Altcoin Market Cap Relative Strength Indicator (RSI) has also moved into bullish territory, breaking above the 60-point resistance. Moreover, if the buyers build support above his 50-day EMA with positive volume, the short-term uptrend could continue until the end of his Q1 2023.
Historical Trends and Positive Sentiment Spikes
The sustainability of bullish altcoins is questionable, especially as the underlying trend remains bearish. The fundamental catalyst underpinning this bull market is hard to pinpoint, with bitcoin prices moving between $18,200 and $19,000. below the resistance between Therefore, the uptrend may weaken as buyers become exhausted.
Looking at previous crypto cycles, altcoins outperformed Bitcoin during the bull market and then crossed over with Bitcoin during the cooldown period to lead the crypto market up.
The recent 2021 Parabolic Run played out similarly, with altcoins surpassing Bitcoin. However, the adjustment period has not seen a sweep of the altcoin market compared to Bitcoin.
Both the altcoin market cap and Bitcoin price have lost 75% of their value from their peaks, in contrast to the altcoin loss above Bitcoin.
Exceptions to the above rule can be attributed to Ether’s growing dominance in the market. Ethereum has gained around 20% market power due to technological breakthroughs such as moving to an energy-friendly Proof-of-Stake mechanism and lower inflation that strongly supports its price despite negative trends. maintain. Still, we cannot rule out the possibility that the market cap of the broader altcoin could be significantly revised.
Recently, social media circles have witnessed a resurgence of positive sentiment. According to Santiment data, social media mentions of keywords like “buy the dip” and “bottom” have spiked on platforms like Twitter, Reddit, and Telegram. A positive sentiment spike is usually the biggest indicator of a bullish price trend reversal.
One of the first hurdles is the price support after short orders are wiped out. Solana and Cardano, one of the first tokens to surge, could provide clues to the end of the uptrend.
If SOL price breaks below the $14.33 support and ADA breaks below $0.30 at the same time, it could be a warning sign of bullish exhaustion.
At the same time, tokens like LIDO, which benefit from the derivatives story of liquid staking, could continue to climb until Ethereum core developers implement the Shanghai upgrade. Macro market movements such as the Consumer Price Index and Bitcoin price action also play an important role in sustaining the altcoin bull market.
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