The second best January on record for BTC price action comes face to face with differing views on US economic policy.
hovered around $23,000 on February 1 after sealing its best January performance in 10 years.
End of Bitcoin bear market ‘default view’
Data from Cointelegraph Markets Pro and TradingView confirmed a monthly close of around $23,100 for BTC/USD – the highest since July 2022.
The largest cryptocurrency ended the first month of the year up 39.6%, according to Coinglass statistics.
The impressive performance encouraged bulls, many of whom kept the faith despite huge doubts from more conservative market participants.
“Bitcoin closes with monthly swing low,” said trader, entrepreneur and investor Bob Loukas.
“I mean, anything can happen, right? But the absolute default view has to be the bear market that ended in December.”
As Cointelegraph reported, opinions differ widely on how Bitcoin will behave in February, with one trader expecting “bearish” conditions to return after five-month highs.
The picture for next month continues to be clouded by macroeconomic drivers. In particular, February 1st will see the US Federal Reserve confirm its next interest rate hike, and the European Central Bank will do the same on February 2nd.
Although a 25 basis point (bps) hike by the Fed is almost “unanimously” priced in, says crypto research and analysis firm Arcane Research, the future remains less certain.
“Due to a relatively strong market recovery, Chairman Powell may benefit from maintaining hawkish restrictive underlining, emphasizing the importance of incoming economic data,” he argued in a blog post published on January 31, adding that consensus “expects an increase of 25bps”. on Wednesday and another increase of 25bps to 475bps on March 22.”
“At the moment, only adjustments during the May 3 and June 14 FOMC meetings are the most likely outcome, but a further increase of 25bps remains a possibility,” he noted.
Expectations for a 25bps increase totaled 99.3% at the time of writing, according to the CME Group’s FedWatch Tool.
If the door were left open for surprises, volatility could increase as a result, with rate decisions already a classic catalyst.
However, with each passing uptick, Arcane showed volatility around the Fed’s cooling move.
“This could suggest that the trend of huge FOMC-induced volatility in BTC is receding,” he concluded.
Dollar strength eyes bounce key
Another concern for crypto activity comes in the form of the strength of the US dollar.
Related: Best January since 2013? 5 things to know in Bitcoin this week
In a market update last week, trading firm QCP Capital warned subscribers that a “massive positive divergence” was at work on the US Dollar Index (DXY).
Traditionally inversely correlated with risk assets, DXY has been declining since mid-2022 but has pared losses into the new year.
“This is the same setup we saw in BTC/ETH in December – and as we saw there, any sideways break will be extremely sudden and violent,” QCP wrote.