Bitcoin is up 26% so far this year; but is this a fake rally before the mother of all crashes?

After a lackluster 2022 and many months of bad news, crypto investors have been patiently waiting for months for some good news, and this past weekend, they finally got some.

Bitcoin jumped about 20 percent in just a few days, with the price of the world’s most popular cryptocurrency up nearly 26% since the beginning of January. It was its best weekly performance since March 2022. Then on Friday, bitcoin reached a key support level of the $19,000 threshold, which previously may have looked like resistance. In the last five days alone, the price of bitcoin rose as high as $3,000 to settle at $21,000.70 as of the time of writing.

However, the new price is still a far cry from its peak of $68,990 record bitcoin set in Nov. 2021. Notwithstanding, the price jump is a ray of hope and a cause for optimism for crypto investors who had gone through months of crypto winter triggered by a perfect storm of rising interest rates, inflation, crypto company bankruptcies, scandals, and the collapse of crypto darling FTX.

Genuine Rally or Dead Cat Bounce?

Considering bitcoin has gone through several roller-coaster rides in the past, the question everyone is asking is: Is this a genuine rally or a dead cat bounce? According to many analysts, Bitcoin experienced a sharp pullback in 2022 due to the broader market linked to the Federal Reserve’s actions.

For the recent rally, however, analysts say that a number of factors behind bitcoin’s current rally, including an increased probability of the Fed lowering the interest rates, as well as big purchases made by large crypto buyers known as “whales.”

With inflation cooling down and economic indicators suggesting slowing U.S. economic activity, traders and crypto investors are optimistic that the Federal Reserve could reverse its action, or at least soften its rate-hiking effort. James Butterfill, head of research at digital asset management firm CoinShares told CNBC in an email: “Bitcoin looks to have recoupled with macro data as investors shrug off the FTX collapse.”

“The most important macro data investors are focussing on is the weak services PMI and the trending down of employment and wage data. This coupled with downwards trend in inflation has led to improving confidence, while it comes at a time when valuations for Bitcoin … are close to all time lows. The prospect of looser monetary policy off the back of weaker macro data and low valuations is what has led this rally,” he added.

Bitcoin is not alone. Ether (ETH), the world’s second most popular cryptocurrency also rose 12.15%, a welcome change from what had been persistently flat trading for most of the prior month.

Whales’ Manufactured Rally?

According to a crypto data firm Kaiko, crypto trade sizes had climbed from an average of $700 on Jan. 8 to $1,100 today on the crypto exchange Binance, indicating renewed confidence in the market by whales. In a series of tweets on Monday, Kaiko said that “trade volumes have soared, reaching their highest levels since the FTX collapse.”

Evidence by average trade size, Kaiko also suggested that “whales could be leading this latest rally.” On Binance, for example, Kaiko found that trade sizes have climbed from ~$700 to $1.1k since Jan 8th.

Whales could be leading this latest rally, evidenced by average trade size.

On Binance, trade sizes have climbed from ~$700 to $1.1k since Jan 8th.

2/4 pic.twitter.com/bJscDkJwfq

— Kaiko (@KaikoData) January 16, 2023

Apart from the hope of the Fed cutting the interest rates, the question is, does the 26% rise in the bitcoin by market demands or just whales trying to artificially manipulate bitcoin prices to lure naive crypto investors? Time will tell.