Bitcoin soars over 40% in January on improved risk sentiment and Fed expectations

The first trading month of the year -January- came with a sharp rally in digital coins across the board despite general worries that a hawkish Federal Reserve will plunge the U.S. economy into recession, coupled with the surging dollar and the negative sentiment after last year’s bankrupts in the crypto ecosystem.

Bitcoin, the largest coin by market cap, has rallied over 40% so far in 2023, bouncing from the lows of the $16,000 mark toward the five-month highs of $23,000-$24,000 at the end of January.

BTC/USD pair, Daily chart

The leading cryptocurrency hasn't given investors such an uplifting January since 2013, while it also posted its best month since a 40% rally in October 2021, when prices jumped above the $60,000 level.

Hence, the return on crypto buying has pushed the total market capitalization for cryptocurrencies to move above the $1 trillion key psychology level, according to Coinmarketcap, while the global crypto volume has risen to $5.5 trillion, which is up 61% since the beginning of the year, according to crypto indexing platform Nomics.

Bitcoin had a rough time all throughout 2022, falling from the record highs of $64,000 to multi-year lows of $15,000, helped by a large number of long liquidations and short selling that were fuelled by a variety of bankruptcies in the crypto ecosystem.

Bitcoin soars over 40% in January on Fed expectations:

The rally in risk-sensitive cryptocurrencies was driven by expectations of a Federal Reserve pivot to slower interest-rate hikes as inflation continued to cool.

The Fed is widely expected to announce a 25-basis point rate increase later today at the end of its monetary policy meeting, increasing the Fed funds rate to a 4.5%-4.75% range.

Market participants expect another 25-basis point rate in March, to 4.75%-5%, but then investors are leaning toward no more hikes.

Investors will be also focused on Fed Chair Jerome Powell’s comments for any signal about a pause in the tightening cycle, future rate hike outlook, inflation, and economy, which could weigh on the dollar and the market risk sentiment.