Bitcoin rallies above $21,000 on improved risk sentiment and a weaker dollar

Cryptocurrencies rallied sharply across the board in recent weeks on improved risk sentiment and a weaker dollar following the growing bets that Federal Reserve will raise interest rates at a slower pace in the coming months, taking some pressure off risky assets such as digital assets.

The crypto rally was boosted during the weekend following Friday’s data that showed U.S. Consumer Price Index (inflation rate y-y) eased further in December 2022 to 6.5% vs 7.1% in November, which weighed negative on the greenback and U.S. Treasury yields.

Due to a falling dollar and bond yields coupled with a high appetite for risk assets (supports bullish moment on cryptos), the price of the crypto market leader, Bitcoin (BTC), has added $5,000 per coin, or over 30%, since the start of 2023, breaking above the $21,000 level for the first time since FTX’s bankruptcy at early November 2022.

BTC/USD pair, 2-hour chart

Ethereum, the second largest token after Bitcoin, has gained nearly 35% year-to-date, hovering at nearly $1,600, lifting its market cap to nearly $200 billion.

However, the most significant gainers among the crypto leaders have been the Solana and MANA tokens, with the first gaining nearly 300% since bottoming at $8 on Dec. 29, 2022, currently trading at around $25, while the Metaverse-linked token more than doubled its price from the lows of $0.30 to the current highs of $0.70s in the same period.

The total cryptocurrency market capitalization reached its highest level in over two months this morning (Jan. 16) climbing toward the key $1 trillion mark. Bitcoin has nearly the 40% of the total market capitalization, followed by Ethereum with nearly 20%, Tether with 7%, and Binance token with 5%.

Despite the recent rebound, the total cryptocurrency market capitalization is still 50% below the $1.88 trillion crypto market cap seen before the Terra-Luna ecosystem collapsed in April 2022, and still 70% below the $3 trillion crypto market cap seen when Bitcoin topped at nearly 69,000 at early November 2021.

2022 had being a wild year for the crypto ecosystem driven by the bankruptcies of major players in the market beginning with the Terra/LUNA ecosystem in April and followed by the collapse of the FTX crypto exchange platform and its token FTT.