The cryptocurrency market suddenly came to life on Friday night for the first time since FTX collapsed in early November. Nearly every asset was up big, and some with ties to FTX are significantly higher.
Bitcoin (BTC 5.46%) jumped 10.9% and is trading at $20,909 at 8 a.m. ET, surpassing the $20,000 level for the first time since FTX became insolvent in early November. Ethereum (ETH 5.61%) is up 10.1% in the last day to $1,540 and Solana (SOL 25.12%) is the big mover, popping 36.1% to $22.53. Over the past week, the cryptocurrencies are up 23.2%, 21.5%, and 69.9%, respectively.
Momentum can be a powerful force in cryptocurrencies, especially on the weekend. Trading on weekends often leads to some of the biggest moves, as traders take time off and there’s less liquidity (buyers and sellers) in the market.
Fueling some of the moves is liquidations of short positions. According to coinglass.com, $730 million of short positions have been liquidated in the last 24 hours with $240 million of that being in Bitcoin, $261 million in Ethereum, and $26.3 million of Solana short trades.
The two macro news items this week were inflation data that showed a reduction in prices over the past month, leading to speculation the Federal Reserve will soon stop raising rates and may even be forced to lower rates sooner than expected. This pushed growth stocks and high-risk assets higher this week, but the momentum really hit crypto hard on Friday evening into Saturday morning.
Since FTX got us here, it may in part be FTX that has driven the rally. By that, I mean that liquidators of FTX’s assets have recovered $5 billion in assets to return to customers and they’ve been selling leveraged positions as quickly as possible. That added selling pressure to a market with lower liquidity, and when added to the short positions this can drop prices. But when they slow selling and short positions get liquidated (as they have today), the bounce higher can be swift.
The price of cryptocurrencies fundamentally comes down to supply and demand. Supply isn’t rising very quickly, so demand is the key. When FTX collapsed and the crypto winter wore on, many investors and traders either gave up on the market or took short positions to take advantage of weakness. But over time there should be more and more users of the blockchain, helped lately by significant corporate interest.
I think the long-term trend for cryptocurrencies is still higher, but the volatility seen over the last two months will continue. There needs to be more use cases that disrupt old businesses or create new businesses, and that’s when mass adoption will come. That’s why Solana is my top cryptocurrency long term, given its low costs and high speed. But a rising tide lifts all boats, and bullishness on crypto overall is helping everything trade higher today.