Why is crypto up today? Fed liquidity, ETF inflows are the catalyst
The Bank of Japan's tightening policy has led to sell-offs in Bitcoin previously, and could do so once more.
Bitcoin rallied 11.81% since its low of $84k on the 1st of December, to reach the $94k resistance level.
Such a dramatic performance in under 48 hours was unexpected. It certainly caught many market participants out, who were expecting the downtrend to continue.
CoinGlass data showed that Bitcoin saw $223 million in liquidations in the past 24 hours, with $209.5 million of them being short liquidations.
Across the crypto market, $492.11 million was liquidated in a day, $418.53 of which was short positions.
Why exactly is crypto rallying this week?
Make no mistake, the long-term trend remains bearish. The market sentiment has also been pessimistic in recent weeks. The recent Bitcoin move beyond $92k, to the $94k resistance, was a significant development.
Bitcoin leads, and the crypto assets follow, for the most part. Hence, examining the reasons for a BTC rally will lead us to why crypto is up today.
The Bitcoin ETF flows turned positive on the 25th of November after experiencing heavy outflows. It has remained positive since then, a sign that sellers were losing traction for now.
The tighter policy that the Bank of Japan is pursuing has affected the market negatively. U.S. investors were more cautious, which explained the losses up to the previous week.
At the same time, the $88k marked a critical support level, according to the CVDD channel.
An AMBCrypto report pointed out that the latest rally was likely driven by the search for liquidity. An earlier report had predicted this was a possibility, and Bitcoin had the chance to race towards $95k.
Another factor was that the U.S. Federal Reserve ended quantitative tightening (QT) on the 1st of December.
It initiated its first steps toward liquidity expansion, which could be the first step towards a crypto rally.
A $13.5 billion injection into the banking system has likely impacted crypto market sentiment and sent Bitcoin higher.
The BOJ tightening has led to sell-offs in Bitcoin and the wider crypto market in March 2024, July 2024, and January 2025.
On the other hand, the probability of a U.S. Federal Reserve rate cut of 25 bps in December stands at 89.1%. It is difficult to gauge where prices would go next, but for now, expect heightened volatility.
Final Thoughts
- A 12% Bitcoin rally since Monday, while impressive, does not change the longer-term bearish trend.
- Macro developments tugged at the crypto market in both directions and could set up highly volatile conditions.
