Why Bitcoin, Ethereum and Solana jumped over 12% this week

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What happened

The cryptocurrency market was on fire this week as nearly all major tokens rose in value. A rising stock market, falling inflation and falling interest rates were all tailwinds, but there was also some potentially positive industry news.

According to data provided by S&P Global Market Intelligence, over the past seven days, Bitcoin (BTC 1.86%) has risen 13%, Ethereum (ETH -0.91%) has jumped 12.8%, and Solana ( SOL 0.77%) increased by 27.5%. starting at 9:45 a.m. ET on Friday morning.

So what

I’ll start with the macro environment because that’s the most important factor here. Consumer Price Index (CPI) data showed that inflation was slowing and was actually negative month-over-month in December 2022. This led the market to assume that the Federal Reserve will cease to raise rates as quickly as it has done over the past six months and may even be forced to cut rates to avoid deflation. Interest rates have fallen in response to this data and equities are up. As an asset class that often trades in unison with the stock market and growth stocks, it’s no surprise to see crypto popping up this week.

Within crypto, FTX liquidators claim to have recovered $5 billion in assets, including cash and cryptocurrencies. The court asked them to complete returning funds to customers by March 15, 2023, but FTX Chief Financial Officer Mary Cilia had previously estimated that could be done by April. Either way, the outcome of FTX appears to be moving faster than many outsiders expected, which could be bullish for FTX customers and the industry at large.

Solana was specifically affected by the FTX bankruptcy because Sam Bankman-Fried, FTX, and Alameda Research were big cryptocurrency investors. Held tokens are locked in a first round of funding, but much of the remaining FTX dark cloud over Solana is lifting and trading volume and non-fungible token (NFT) prices have both increased over the course of of last month.

Ethereum’s upcoming update, known as the “Shanghai Hard Fork”, was also seen as bullish as it will unlock tokens that have been locked and inaccessible for months.

Now what

Like many cryptocurrency moves, short-term moves are driven more by the stock market and the crypto narrative. The second half of 2022 was terrible as growth stocks fell, interest rates rose, and there were a number of bankruptcies and crypto frauds. For now, the narrative has changed as investors are once again buying risky assets.

The biggest risk to keep in mind is the opaque nature and potential risk that Binance, the world’s largest crypto exchange, faces. Auditing firm Mazars, which previously performed proof of reserves reports for Binance, severed ties with the company and Binance has yet to prove that it owns the assets it claims to own. FTX did the same, so it’s worth being skeptical as there is no verification of what Binance holds.

In the long term, I am optimistic about the crypto industry and the disruption it brings to the world, but there could be more risk and price drops ahead. Even though the crypto winter is coming to an end, the market will not recover overnight.

Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.

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