Bitcoin prices bounced back after dropping to their lowest level since mid-March – here’s why

Bitcoin prices have recently rebounded, jumping more than 4% in 24 hours and then keeping most of their gains.

The world’s largest digital currency by market capitalization surged to $39446.80 earlier today, according to CoinDesk data.

The cryptocurrency soared to this value after dropping to nearly $37,700, its lowest level in several weeks, the night before.

After climbing to an intraday high, the digital asset experienced some volatility, falling below $38,500 but then recovering above $39,000.

At the time of writing, the cryptocurrency is trading near $39,250, very close to the intraday high.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

When it comes to explaining Bitcoin’s recent gains, several analysts have provided input on the matter, and have identified several potential reasons for the rally.

Bitcoin’s recent relationship with stocks

Many of these market watchers emphasized the remarkable correlation between stocks and Bitcoin.

When asked if gains in stocks are helping to drive up the price of digital assets recently, Joe DiPasqual, CEO and managing director of crypto hedge fund BitBull Capital, gave a short response.

“Yes, correlation to stocks is currently driving the price of bitcoin,” he said.

Tim Enking, Managing Director of Digital Capital Management, also shared, “The correlation between the stock market and BTC is at an all-time high.”

He described the situation as unfortunate, “because, historically, the lack of such correlation has been one of the main reasons for buying BTC (or almost any cryptocurrency, for that matter).”

Ben McMillan, CIO of IDX Digital Assets, also commented on the relationship between bitcoin and stocks, although he focused specifically on tech stocks.

“The main story with the price of bitcoin still lies in its correlation with technology stocks (which have reached all-time highs),” he said.

“As a result, the list of tech earnings we saw this week has been leading the day in bitcoin,” MacMillan said.

Furthermore, he noted that “the quarterly reports released this week contribute directly to the price action we are seeing in Bitcoin.”

Broader market developments

Some analysts have offered different explanations, citing a combination of factors when explaining recent bitcoin price movements.

“Treasury yields, credit, relative dollar strength (against global securities) and legacy market volatility now tell the story,” said Dylan Leclerc, head of market research at Bitcoin Magazine.

“The Bitcoin chart is one of the functions of these markets,” he said.

Josh Olszewicz, Head of Research at Valkyrie Investments, has also identified multiple variables driving the price movement of the digital currency recently.

“The significant intraday volatility was mostly driven by the Nasdaq and Bitcoin correlations, as well as more hawkish comments by Federal Reserve Chairman Jerome Powell,” he stated.

“Earnings reports over the course of the week have also added to the volatility of old hours in the US and beyond,” Olszewicz added.

“In addition, crypto markets have been very sensitive to Elon’s acquisition announcements on Twitter, likely due to the belief that digital assets will be associated with the platform in the future,” the expert said.

Anthony Denyer, CEO of trading platform Webull Financial, took a simpler approach, claiming that while bitcoin and stocks often move together, the digital currency’s recent gains are the result of investors’ appetite for riskier assets.

Bullish prospects

From now on, the current market conditions could be very favorable for bitcoin prices, LeClair said.

“So far in 2022, Bitcoin has essentially acted as a 24/7 inverse VIX (the S&P 500 volatility index). Bitcoin traders and HODLers pile in, while Wall Street risk shops are shedding risk,” he said.

“The relationship is likely to remain strong for now as the bubble of everything globally is cleared,” the analyst predicted.

“Bitcoin is poised to outperform broadly after a hawkish central bank policy reversal, based on accumulated data and extreme risk-taking from the derivatives markets,” he concluded.

Disclosure: I have some bitcoin, bitcoin cash, litecoin, ether, EOS, and sol.

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