A stealth rally in cryptocurrencies is currently underway.
Investors can’t be faulted for having missed an 8% breakout in Bitcoin over the past week — a string of listless daily moves by the digital coin camouflaged a big upward swing that’s happened just as U.S. stocks are also attempting to emerge from a recent downturn.
“There is a positive correlation between stocks and Bitcoin since last year and that never went away,” said Ben Emons, global macro strategist with Medley Global Advisors LLC. “When stocks find their footing, Bitcoin and crypto are supported.”
Bitcoin, the largest digital asset by market value, rose as much as 5.3% to $43,326. The S&P 500, meanwhile, was up 1% as of 2:55 p.m. in New York as investors mused that its recent selloff could be complete. The digital coin is up 10% since last Monday and is now trading in the higher ranges of its two-and-a-half-month-long consolidation phase, according to research from Arcane.
Other digital tokens such as Bitcoin Cash and Ethereum Classic gained even more on Tuesday, rising more than 10% each.
Brett Munster at Blockforce Capital is tracking the percentage of the total Bitcoin supply that hasn’t moved in over a year, meaning coins that have sat dormant for at least 365 days. That percentage is approaching record highs, he found via data from Glassnode.
“Not only that, the rate at which the percent is growing is much faster than the last time we were at these levels,” Munster wrote in a note. “I expect this number to set new all-time highs in coming weeks and months because it’s exactly this cohort that stepped in and aggressively bought in April and May of last year when Bitcoin’s price fell.”
Despite declines over the past year, a majority of Bitcoin supply never sold, he added. “In other words, a greater number of people and a greater percent of bitcoin holders understand the long-term viability of the asset they are holding and are completely unfazed by short-term volatility.”
Bitcoin is many things to different people, so narratives around why investors should own it have shifted over time. It gained renewed attention over the past few weeks as the war in Ukraine broke out. The coin, which emerged during the depths of the global financial crisis more than a decade ago, has long been touted as an alternative asset that could serve useful during inflationary periods, geopolitical conflicts and more. It’s not beholden to any government, the argument goes, and can therefore be thought of as a safe haven during times of turmoil.
Still, not everyone’s sold on the idea that Bitcoin has definitively dug itself out of its rout. Noelle Acheson, head of market insights at Genesis Global Trading, says more than 80% of Bitcoin in circulation is being held in longer-term addresses, meaning those with an average holding period of five months. Meanwhile, over 60% of BTC has not moved in over a year, she said.
“This build-up of both support and uncertainty points to an eventual breakout at some stage,” she said. “That said, until there is some resolution of the factors that are driving the current uncertainty, the market will likely not break out of its current range.”
Many crypto backers also argue Bitcoin could prove its might as an inflationary hedge as consumer prices spike right now, though others say it’s too soon to make that case.
Brendan Playford, founder and CEO of Masa Finance, a decentralized financial data platform, says there’s a risk rate hikes by central banks could spawn a global recession without doing much to crimp inflation.
“What will be interesting to watch is how Bitcoin will factor in this equation. Demand for the world’s foremost crypto asset is still very, very high,” he said. “And if this plays out as expected, then Bitcoin could be a significant step closer to serving as a hedge against instability.”