Crypto Markets Analysis: Bitcoin, Ether Price Surge a Reversal From Darkest Days of 2022

Bitcoin and ether continued to trade in a narrow range on Tuesday amid light trading as investors anxiously await the Wednesday announcement of the U.S. Federal Reserve’s decision on an interest rate hike. Markets widely expect a 25 basis point (bps) increase on Wednesday.

The current lull has done little to offset crypto markets' 2023 feel-good story where bitcoin has registered its largest January gain since 2013 while ether rose to two-month highs. BTH was recently trading around $23,100, up nearly 1.5% over the past 24 hours and nearly 40% for the month. Ether was recently changing hands just below $1,600, also up about 1.5% and more than 30% for January.

Both of the largest cryptocurrencies by market capitalization are trading much higher than they were during crypto’s darkest days last year. Below is a listing of the five-worst trading days of 2022 for both BTC and ETH. The assets have been highly correlated and so the lists overlap. Both lists also correspond to days of massive uncertainty around the solvency and operations of several crypto institutions.

BTC’s worst 2022 trading day was a 16% decline on June 13, coinciding with Celsius Network’s announcement that it was pausing investor withdrawals. ETH’s worst trading day was a 17.5% decline on Nov. 9, when Binance retreated from a deal to acquire troubled crypto exchange FTX, which subsequently filed for bankruptcy protection.

BTC and ETH have surpassed the closing prices on those beleaguered days, with investors seemingly having already pivoted from negative contagion of those events to focus on more currently relevant factors, such as inflation numbers and the next Fed interest rate announcement.

Tuesday’s BTC and ETH small price increases imply cautious optimism ahead of the Fed decision. The CME FedWatch tool currently places the probability of a 25 bps increase at 98.2%, a dovish tilt suggesting the Fed believes it's taming inflation with its actions.

On a technical basis, momentum has declined because both cryptos reached overbought levels, when using the Relative Strength Index (RSI) as the means of measurement.

The RSI indicator measures the speed and magnitude of price changes and ranges between 0-100. Readings above 70 imply that an asset is overbought, and readings below 30 indicate that an asset is oversold. Bitcoin and ether recently rose as high as 87 and 86, respectively, and have since declined to 70 and 59.

Bitcoin actually remains in overbought territory and has outperformed ether on the year, despite a contraction in ETH’s supply.

Both assets have appeared to settle into new areas of support near $23,000 for BTC and $1,600 for ETH.