The crypto rally we’ve seen to start 2023 appears to have significant momentum. As it happens, weekend rallies have propelled much of the move in top cryptocurrencies to start the year, with Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL) seeing 2021-esque moves to start the year. As of 4 p.m. ET, these three top tokens have surged 3.2%, 4.5%, and 9.3%, respectively, in 24 hours.
Macro conditions remain broadly bullish for risk assets, leading to strong interest from investors in higher-risk assets such as cryptos. Core and overall PCE prices rose at the slowest pace since 2021 and the the Bank of Canada hiked rates by only 25 basis points (0.25%), signaling a pause on the horizon. These catalysts have provided indications that a pause-and-pivot scenario could be in play for the Federal Reserve this year. For higher-risk assets like crypto, this is a big deal.
On a token-specific level, these three mega-cap cryptos have their own catalysts investors are watching closely right now. Bitcoin’s strong momentum this month has translated into strong moves across various altcoins, with the token set for its best January in a decade, moving approximately 50% off of last year’s bottom. Ethereum’s upcoming Shanghai upgrade has led to a record amount of ETH being staked on the network, driving demand for its tokens as investors seek passive income potential from the world’s second-largest crypto. And plenty of discussion around Solana is brewing, with the leading “Ethereum killer” seeing increased interest due to much-improved network performance and a lack of downtime seen in recent weeks.
There’s plenty for crypto investors to unpack with these moves. On the one hand, an argument could be made that these speculative assets may have sold off too quickly last year, with the market under-pricing the probability that monetary policy tightening would be short-lived (as it now appears could be the case). On the other hand, plenty of crypto skeptics point to this rally as likely being unsustainable, given the probability that a Fed pause could be in place longer than many anticipate.
We’ll have to see what happens on the macro front. That’s nearly impossible to predict. However, one thing that’s caught my attention this year is the extent to which bullish catalysts are now being priced into the valuations of key cryptos. Institutional investors appear to now have the green light to buy cryptos on good news, and are doing so en masse.
A few weeks of bullish momentum does not necessarily imply a multi-year bull market rally is underway. While many crypto investors may note that this risk-on rally feels a lot like the post-pandemic surge we saw just a couple short years ago, it’s probably too soon to declare this crypto winter over. Many of the headwinds that have contributed to the negative macro backdrop seen in 2022 remain.
That said, the sample size with this recent crypto rally may be enough to suggest that momentum can be sustained over the medium term. In addition, Bitcoin, Ethereum, and Solana are among the top digital assets with institutional demand. Thus, if capital really starts flowing to this sector in a big way, this is a rally that may have legs, at least for the next few months.
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Chris MacDonald has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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