Cryptos On The Rebound

Following months of heavy losses, cryptocurrencies are finally starting to rebound in February. BTC has now recovered almost 40% off the lows printed in January while ETH has climbed by almost 50%. Much has been made of the cascade we’ve seen since the all-time highs printed last year with many calling for a crypto bear market and forecasting lower prices in cryptos. However, the rebound seen over the last week or so is a strong reminder of just how quickly sentiment can shift in digital currencies. With prices bounding firmly off the lows, the question now is whether the longer term bull trend is starting to regain momentum, or if this is simply a correction against the recent sales?

What’s Driving the Bounce?

One of the key factors behind the bounce in BTC has been the softening of the focus on Fed tightening. With some key Fed members pushing back against the idea of more aggressive tightening and with other G10 central banks stepping up their own tightening schedules, USD has fallen out of the limelight a little. This shift has allowed cryptos to rebound, creating space for longer term players to reload long positions with the bounce also being fuelled by a liquidation of late shorts. In simple, much of this current rally can be attributed to a short-squeeze. However, given that there has been no major drop in open interest, this suggests that the move is not primarily a short-squeeze and has more substantial factors behind it.

Cryptos Undervalued?

With a large spike in volume seen on the very lowest candle in the recent sell off in both BTC and ETH, it seems feasible that longer term players are re-entering, or upping their positions. With many industry reports, such as those by Glassnode and FSInsight suggesting that market leaders such as BTC and ETH remain highly undervalued, the recent sell off represents a strong buying opportunity for those who believe cryptos are heading higher again this year.

Fed in Focus

Looking ahead over the remainder of Q1, the key focus will likely be on how the Fed acts at the March meeting. With a .25% rate hike already priced in, if the Fed simply acts in line with forecasts with no visible upgrade in its guidance or projections, this will likely allow cryptos further room to run higher. However, any uptick in Fed hawkishness will no doubt weigh on cryptos and the broader risk complex in general.

Technical Views

BTC

The rally off the sub 37030 lows has seen price breaking back above the bear channel from all-time highs. Price has also broken back above the 41510 level and broken bullish trend line. With both MACD and RSI turned bullish here, the focus is on a continuation higher. However, bulls will need to see price quickly above the current 45405 level, putting the focus on 52260 above. A failure here, however, raises risks of a continuation lower marking 30640 out as the bear target.