Bitcoin topped $20,000 on Tuesday, hitting its highest level in the more than a week, but is still struggling to break out of its tight trading range.
The world’s largest cryptocurrency was more than 6% higher at $20,193.90 at around 7:14 a.m. ET, according to data from CoinDesk.
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Bitcoin’s rally lifted the broader cryptocurrency market. Ether was up around 6% at $1,391.30.
Still, bitcoin has struggled for direction, trading between $18,000 and $25,000 since mid-June after a crash saw nearly $2 trillion wiped off the entire crypto market since its peak in November.
That market decline was driven by interest rate rises from central banks aimed a controlling rampant inflation as well as a wave of bankruptcies and insolvency issues that filtered through the crypto industry.
Crypto investors have been watching monetary policy because digital currencies have been closely correlated to U.S. stock markets this year. Higher interest rates have put pressure on the S&P 500 and tech-heavy Nasdaq, which has filtered through other risky assets including cryptocurrencies.
The U.S. Federal Reserve’s 0.75 percentage point rate hike last week marked a “major event” for crypto markets, according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
“This was broadly in line with market expectations and hence, we’ve seen a lot of that sentiment priced in,” Ayyar said.
Interestingly, bitcoin’s rally, which began on Monday, happened despite a fall in U.S. stocks with the S&P 500 closing at its lowest level of 2022. Stock futures rose on Tuesday. So, there are signs that perhaps the correlation between crypto and stocks could be weakening.
Meanwhile, investors are watching the U.S. dollar closely. The dollar index, which tracks the greenback against a basket of currencies, is up more than 18% this year. Bitcoin moves inversely to the dollar, so a strong greenback is negative for bitcoin. However, Ayyar said that the dollar index could be nearing its top which would mark a potential bottom for bitcoin. That could be a reason behind bitcoin’s surge.
“Traders hence might also be positioning themselves accordingly,” Ayyar said.
Since mid-June, when the crypto market set recent lows, investors were focused on a massive network upgrade to the Ethereum blockchain called the merge, which changed the method of validating transactions on Ethereum and significantly reduces the energy consumption.
In the run up to the upgrade, which was completed on Sept. 15., the price of ether, the native cryptocurrency of Ethereum doubled, far outpacing bitcoin’s gains in the period. However, ether has declined since the merge.