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The world of crypto has been experiencing a significant rally in recent weeks, with Bitcoin leading the charge and gaining over 30% in just seven days. This sudden surge has led many to wonder about the factors driving the crypto market and what the future holds for cryptocurrencies. In this blog, we will explore the various factors behind the recent crypto market rally and examine the outlook for Bitcoin and altcoins.
Key Drivers of the Crypto Market Rally
Massive Short Squeeze
One of the key drivers of the crypto market rally has been a massive short squeeze. Over $300 million in leveraged BTC short positions were liquidated over the last week, resulting in over $300 million in buying pressure for BTC. This is a substantial amount during a bear market when it doesn’t take nearly as much money to move prices up or down. This surge was also aided by the fact that Binance, one of the world’s largest crypto exchanges, turned $1 billion worth of BUSD into BTC, ETH, BNB, and other unnamed cryptos. This massive buy order sent ripples across the market and added significant momentum to the rally.
Upcoming Ethereum Shanghai Hard Fork Update
Another factor driving the rally is the upcoming Ethereum Shanghai hard fork update. The hard fork is set to take place on April 12 and will allow users to withdraw their staked ETH. This update is expected to stimulate Ethereum market demand, as institutional investors are likely to find ETH more appealing due to its yield potential. The ability to earn a yield on what is effectively the next network for payments is an attractive prospect for many investors. It is believed that many institutions were hesitant to stake ETH because it wasn’t possible to unstake. However, with the upcoming update, millions, if not billions, of dollars could flow into ETH in the days and weeks that follow.
Fed’s Balance Sheet Increase
Another driver of the rally is the increase in the size of the Fed’s balance sheet following the bailout of SVB. Bitcoin has always been sensitive to changes in money supply, and the increase in the Fed’s balance sheet by 300 billion dollars has been seen as a significant boost to Bitcoin’s price. Bitcoin was created in response to the 2008 bank bailouts, and many of its supporters argue that it is a hedge against the traditional financial system. As the Fed and other central banks continue to print money to support failing banks, investors are turning to Bitcoin as a safe haven asset that is not subject to the same inflationary pressures as fiat currencies.
The recent banking crisis in Europe has only added to this sentiment. The purchase of Credit Suisse by UBS for 3 billion Swiss francs ($3.2 billion) is part of an urgent plan by Swiss and international leaders to restore trust in the banking system. However, this move is likely to further erode public confidence in traditional banks and could drive more investors toward Bitcoin and other cryptocurrencies.
Altcoins Struggle to Rally Amidst Bitcoin Dominance
Bitcoin has long been the dominant player in the crypto market, both in terms of market capitalization and overall influence. At the time of writing, Bitcoin accounts for around 46% of the entire crypto market cap! Its price movements often dictate the direction of the overall market.
Altcoins’ Struggle to Gain Traction
During this race, Altcoins have not been able to rally to the same extent as Bitcoin. While some, like Ethereum, have seen significant gains, many others have struggled to gain traction. One obvious reason for this is Bitcoin’s dominance in the market. Moreover, altcoins often face unique challenges that Bitcoin does not. Many altcoins have been plagued by security issues, lack of liquidity, and regulatory uncertainties, which have hindered their growth and adoption. Investors may be hesitant to invest in these altcoins due to the high risk involved.
Despite the challenges faced by altcoins, there are still several promising ones that have gained significant market share. Ethereum, for instance, has become widely adopted as a platform for decentralized applications and smart contracts, making it the second-largest crypto by market capitalization.
Caution and Evaluation for Investors
While Bitcoin continues to dominate the market, altcoins have the potential to offer distinct advantages and opportunities to investors. Nevertheless, investors should exercise caution and carefully evaluate the risks associated with investing in any crypto, whether it is Bitcoin or an altcoin.
In light of the recent market rally, the future looks bright for the crypto market, and we can hopefully expect more exciting developments and opportunities to emerge in the coming months this year.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.