Crypto traders have a couple of possibilities right now because of historically low volatility and potentially encouraging macroeconomic data.
While 2022 came to a depressing conclusion with economic headwinds offering little chance of a recovery in 2023, the beginning of the new year has shocked bearish with a leap in Bitcoin, Ether, and altcoin prices. The crypto market seems to be concluding its era of low volatility with an upward breakthrough.
Particularly notable increases have been seen in Solana, and Cardano, alternative currencies. The imminent Ethereum Shanghai upgrade and the negative financing rate in the futures market, particularly for SOL, are the main drivers of the increase in value of these currencies. Given that the majority of traders appear to be holding short positions, the negative rates present a chance for whale purchasers to run their stop losses. Some other coins' funding rates are still subject to a short squeeze.
Degen gambling has also returned to the new year after taking a backseat following the collapse of FTX in November. Memecoin's price explosion is proof of the lingering degen spirit. Technically, as positive momentum increases, the entire market capitalization of alternative coins has surpassed a significant technical resistance level.
Although the bull run's longevity is in doubt because the overall trend is still bearish, the nascent uptick might yet do some harm to late sellers. The following are the top five elements affecting altcoin prices:
Data on the Job Market Rekindles Optimism for a Gentle Landing
The labor market data revealed that 230,000 new nonfarm payrolls were added, representing a 0.2% gain in employment, defying Dow Jones predictions for an extra 200,000 nonfarm job additions in December and market expectations of a downturn.
A healthy labor market disproves common recessionary predictions and spurs a risk-on surge. The Consumer Price Index (CPI) figure for December, which will be released on Jan. 12, will be crucial in determining if the recently discovered optimistic feeling will be maintained or if negative sentiments will return.
If the CPI figure for December is below 7.7% and inflation continues its downward path, the market's confidence in a gentle landing may grow. However, if inflation increased in December, the likelihood that the U.S. Federal Reserve would raise interest rates at its meeting at the end of January would rise, increasing the possibility of a sharp decline.
Permanent Swap with a Negative Financing Rate is Sought After by Traders
The year's end and the Christmas trading season saw a decline in spot trading activity and liquidity on cryptocurrency exchanges, which gave futures markets more power to move prices. It is very possible that a price will respond in the opposite direction to a busy trading position.
Source: Coinglass - Funding rate for SOL perpetual swaps
The most recent price increase for Solana is unequivocal proof that short-squeeze is pushing prices. SOL shorts worth $200 million were liquidated over the weekend as the stock's price increased by approximately 27% from its low point of $13 on January 6. "SOL still has somewhere to go, but the out performance era is basically behind," claims independent market expert Alex Kruger.
Successful Technical Breakthrough
At $465 billion, the market capitalization of alternative coins crossed the 50-day EMA. Buyers would probably aim for the $563 billion 100-day EMA, which represents a predicted average gain of 20% for all the tokens. Before a reversal starts, technical traders would want to hit these important levels.
Source: TradingView - Total altcoin market capitalization
The relative strength indicator (RSI) for altcoin market capitalization also crossed the barrier level of 60 points and entered the positive zone. Furthermore, the short-term rally can continue until the last quarter of 2023 if buyers establish support above the 50-day EMA with positive volumes.
Historical Patterns and an Increase in Positive Sentiment
Given that the underlying trend is still bearish, the viability of the bullish cryptocurrency run is in doubt. The underlying driver of this bull run is difficult to pinpoint, and Bitcoin's price is currently trading below the area that previously served as a barrier between $18,200 and $19,000. As purchasers tire, the rise is therefore expected to diminish.
Source: TradingView - Altcoins outperform Bitcoin during bull markets
If we take a look at prior crypto cycles, we can see that during a bull run, altcoins outperformed Bitcoin, and during the subsequent cooling phase, there was a cross-over with Bitcoin driving the crypto market gains.
Similar events occurred during the most recent parabolic surge in 2021, with altcoins outperforming Bitcoin. In contrast to Bitcoin, the altcoin market has not been completely destroyed during the downturn phase.
Both the market capitalization of altcoins and the price of bitcoin have declined by 75% since their peaks, with altcoin losses outpacing those of bitcoin. Positive emotion recently had a rebirth in social media circles. Santiment data reveals that on websites like Twitter, Reddit, and Telegram, mentions of the terms "buy the dip" and "bottom" increased. An increase in positive mood is typically the best sign that the bullish price trend is about to change.
Supporting the price following a wipe out of short orders will be one of the first obstacles. Solana and Cardano, two of the first tokens to skyrocket, may offer hints about when the rally is about to cease.
A warning indication of the bull's tiredness might be seen if the price of SOL drops below support at $14.33 and ADA also falls below $0.30.
At the same time, until Ethereum core devs execute the Shanghai update, tokens that profit from the liquid staking derivative story may continue to increase. The continuation of a bull run in altcoins will be greatly influenced by macro market movers like the CPI data and Bitcoin's price movement.
Disclaimer: The information in this part does not show the official view of FAMEEX or any investment tip.