Why Crypto Winter Thawed for Altcoins Today

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What happened

The crypto winter suddenly thawed from Friday evening as industry tokens soared. I’ve highlighted some of the major cryptocurrencies moving earlier, but some big name altcoins are popping up as well. And there may be a good reason.

Polkadot (DOT 11.37%) is up 15.7% in the past 24 hours at 5:00 p.m. ET, NEAR Protocol (NEAR 14.87%) is up 21.1% and Tezos (XTZ 9, 23%) jumped 13.4%.

So what

The macro market environment cannot be overlooked in crypto trading lately. Inflation data this week showed that prices in the United States actually fell month-on-month in December, leading investors to believe that rate hikes could end sooner. sooner than expected. Stocks rallied, and riskier assets like cryptocurrencies did as well.

On a more substantive level, the U.S. House of Representatives announced a subcommittee on digital assets, fintech, and inclusion, which will report to the House Financial Services Committee. Lawmakers have been talking about regulating cryptocurrencies more meaningfully, and this is an early sign that the new Republican leadership might be serious about it.

Regulatory guidance has been met with enthusiasm by crypto traders over the past year, but hasn’t led to much. I think altcoins like Polkadot, NEAT and Tezos – with the blockchain fundamentally designed to create utility – would be in a great position if there was more regulatory certainty.

From a trading perspective, the crypto is in a relatively low volume environment, which means there is not much liquidity (buyers and sellers). When values ​​started to rise, it caused a run that shocked the market and led to short position liquidations. In the past 24 hours alone, there have been $624 million in crypto liquidations across major tokens and altcoins. This short squeeze is like fuel for a crypto rally.

Now what

Cryptocurrencies continue to be extremely volatile and risky, but developers also continue to create real utility around the blockchain. In the long term, new companies and new payment solutions should drive cryptocurrency prices higher, but that doesn’t mean the ride will be smooth.

I think the last day pop was driven by a pick up in sentiment after the FTX crash. When FTX went bankrupt, it was clear that billions of dollars in assets would have to be liquidated or sold, which would drive crypto prices down. Traders exited before this move, but this week it was reported that $5 billion in cash and cryptocurrencies had been recovered, some of which came from selling leveraged positions. If the deluge of sales is over, buyers can walk away.

The market rally may last, and it may fade, but there seems to be a shift in sentiment in both the stock market and crypto. A slower rise in interest rates would be positive, and there is clearly a lot of leverage that has already left the ecosystem. But it will be a volatile race, even if the future is bright.

Travis Hoium has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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