Bitcoin extended a rally amid a brighter mood in global markets and as traders await US inflation data and monitor a seminal upgrade of the Ethereum blockchain.
Bitcoin topped $22,000 as it continues a week-long rally ahead of U.S. inflation data and a highly anticipated Ethereum network upgrade.
The world’s largest cryptocurrency hit $22,341.50 at 9:45
p.m. ET Sunday before dipping slightly, according to CoinDesk data. Bitcoin was
trading at $22,203 at around 4:03 a.m. ET on Monday.
After falling below $19,000 on Wednesday to its lowest level
since June, bitcoin has since rallied around 17%.
This also comes off the back of a winning week last week for
U.S. stocks. Bitcoin has been closely correlated to equity markets,
particularly the Nasdaq, and often moves higher when the tech-heavy index
rises.
Crypto investors are looking ahead to the August consumer
price index report, scheduled to be released Tuesday, to see the direction
inflation is headed which could give hints toward future policy moves by the
U.S. Federal Reserve.
Stocks have been under pressure this year as the Fed has
hiked interest rates to try to control rampant inflation.
Cryptocurrencies, which are also risk assets, have been
battered. Nearly $2 trillion has been wiped off the entire crypto market since
its all-time high in November. Bitcoin is down more than 50% this year.
That decline has also been driven by crypto-specific issues
including the collapse of key projects and bankruptcies that have spread across
the industry.
Meanwhile, the Ethereum network will complete a long-awaited
upgrade called the merge. This will transform the Ethereum blockchain from a
proof-of-work to proof-of-stake model and significantly reduce the amount of
energy required for the network to operate.
Proponents say this could pave the way for a broader use of
ether, the token that runs on Ethereum.
“Crypto faces an unusual double whammy this week: U.S.
inflation data and [hopefully] the long-awaited and oft-delayed Ethereum Merge.
Hold your breath for a rollercoaster ride,” Antoni Trenchev, co-founder of
Nexo, said in a note on Monday.
“In a time awash with narratives, there’s none bigger than
the Merge in crypto and it’s one which the wider world should take notice of
with Ethereum’s carbon footprint set to be slashed by 99%.”
However, analysts cautioned that the merge will not
necessarily speed up the Ethereum network, which is known to be slow, nor will
it reduce the fees associated with transactions.
Still, excitement has been growing for the merge. Since
ether hit its low for the year in mid-June, the price for the world’s
second-largest cryptocurrency has far outpaced bitcoin’s. Ether is up more than
90% since June. 19 while bitcoin has risen just over 20%, begging the question
of how much the merge has already been priced in.
The Federal Reserve is also widely expected to increase interest
rates again next week when its Federal Open Market Committee (FOMC) meets,
which is another dark cloud hanging over the crypto market.
“The Merge may trigger a ‘sell the fact’ situation in the
crypto market and we still need to be careful for next week’s FOMC meeting.
Bitcoin could continue to rally but it could be quite short lived,” Yuya
Hasegawa, crypto market analyst at Japanese exchange Bitbank, said in a note
Monday.