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The 55% Surge in Crypto Marketcap in 2023 – What’s Behind the Rally?

The 55% Surge in Crypto Marketcap in 2023 - What's Behind the Rally?

Bitcoin, the largest cryptocurrency by market capitalization, broke the $30,000 psychological threshold on Tuesday, marking the first time it has hit this level since June 2022. Further the total crypto market has grown by 55% since the beginning of the year

Renewed crypto sentiment despite government crackdown

Despite the US government’s ongoing Operation Chokepoint 2.0 aimed at restricting the use of cryptocurrencies, the rally has not been dampened, and the renewed crypto sentiment appears to be pushing digital assets to new heights.

Bitcoin dominance signals a shift in market sentiment

Bitcoin’s dominance in the cryptocurrency market has also increased slightly, from 48.36% to 48.54%, signaling a shift in market sentiment. Traditionally, a decline in Bitcoin’s dominance indicates greater interest in altcoins.

However, with much uncertainty around securities vs. commodities and the US banking crisis, Bitcoin’s rising dominance appears to stem from investor perception of it as the benchmark for the broader crypto market.

Total crypto market cap increases by 55% year-to-date

As Bitcoin’s gravity turns the crypto market sentiment positive, the total crypto market has grown by 55% since the beginning of the year, from $795 billion to $1.2 trillion. The success of Ethereum’s Shapella upgrade, scheduled for the next day, may further boost the altcoin scene.

Macro liquidity situation raises questions about rally sustainability

The macro liquidity situation raises questions about whether this rally is sustainable or a blip that will soon fizzle out. The Federal Reserve’s hiking cycle has depressed the stock/crypto asset bubble, but with the market expecting another reversal from QT to QE starting in November, only minor or zero interest rate hikes are expected.

The Treasury General Account, which is filled by issuing Treasury securities as government debt, is closing at its lowest point since the end of 2021, now at $140.6 billion. The US Treasury will need to establish another debt ceiling to fund its obligations. The Congressional Budget Office projects that the debt ceiling will likely be raised in Q4 2023.

While the long-term macro-conditions point to a positive direction for Bitcoin, the current rally may not be sustainable. Bitcoin liquidity is much lower than during the same period last year, manifesting as more significant price differences across top exchanges. The rally has largely been driven by American investors who have been driven by the US banking crisis, which now appears contained.

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