Bitcoin and cryptocurrency prices have been under pressure in 2022 as traders feel the effects of some major industry meltdowns.
Bitcoin bounced above $22,000 on Monday, hitting its highest level in more than a month as the cryptocurrency market remains hopeful that the contagion and tremors seen in recent weeks will come to an end.
The world’s largest cryptocurrency ended Monday at $21,610.59, up 2.76%, according to CoinMetrics. Bitcoin hit a high of $22,757.36, its highest level since June 16.
Other cryptocurrencies also recovered, with Ether rising 8.94% to $1,466 late Monday.
Bullish sentiment was helped by a rally in equity markets in Europe and Asia. US stock futures also rose. Cryptocurrencies, especially bitcoin, are closely correlated with stock market trading. Often, a rise in stocks also leads to a rise in sentiment in the cryptocurrency market.
But investors are also looking at whether the carnage of recent weeks, with bitcoin falling nearly 70% from its November high and billions of dollars disappearing from the market, could be over.
The price crash led to the demise of several well-known companies in this space, including hedge fund Three Arrows Capital and cryptocurrency lender Celsius, both of which filed for bankruptcy.
These collapses caused contagion across the industry and put pressure on other member companies.
Much of this has been caused by the massive amounts of leverage and lending that have taken place in this latest crypto cycle. For example, Three Arrows Capital has taken out loans that it was unable to repay after the cryptocurrency collapse. Celsius, which offered its clients a return of more than 18% for depositing their digital coins, participated in risky trading activities to earn interest and tried to pay it back to its users.
Cryptocurrency companies sold all the assets they owned in an effort to meet their obligations, which put pressure on the market in general.
Analysts say there are signs that this contagion is waning.
“The worst contagion in the market is likely to run its course, with the majority of foreclosures behind us,” David Moreno, research analyst at CryptoCompare, wrote in a research note.
Despite the recovery, the cryptocurrency market is still suffering. Both bitcoin and ether have fallen more than 50% this year. Bitcoin had its worst quarter in over a decade in the second quarter.
Analysts are not yet convinced of a sharp rise in the short term.
Given the very negative performance of the second quarter, it is not surprising that a “relief” has occurred. We believe the market will continue to vary in the coming months,” said Moreno.
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