Over the past 24 hours, Ethereum has gained 6.7% to trade around $1,650.
The Ethereum (ETH) price rallied again on Saturday morning. That’s an impressive comeback considering the price plunged below $1,000 last year. Since then, the price has outperformed the Nasdaq 100 and the Dow Jones.
Listed below are some of the reasons why the Ethereum price has risen so much.
Liquidation of Short Positions
The first major reason behind the increase in the ETH price is short liquidations. A short position is essentially a bet that the price of an asset will fall. Short sellers profit when market prices fall. In recent months, shorting of Ethereum and other cryptocurrencies has increased, as the cryptocurrency industry has taken a hard hit.
Therefore, a probable reason behind the Ethereum price surge is that many short sellers decided to liquidate their positions. Thus, the initial rally was part of a bit of a squeeze. There are data to support this view.
For example, statistics compiled by CoinGlass show that the liquidation of short positions is at its highest level in months. The chart also shows that bullish liquidations spiked as Ether prices plunged.
Hope for a Looser Monetary Policy by the Fed
The other reason why the Ethereum price has performed so well recently is macroeconomics. Recent economic data has sent mixed signals about the economy. The US unemployment rate fell to 3.5% in December, while wage inflation eased to 4.7%.
At the same time, the consumer price index (CPI) fell to 6.5% in December, from a high of 9% in June. Core inflation fell to 5.7%. The Producer Price Index (IPP) also decreased in December. Additional data showed that US retail sales declined slightly.
On the other hand, the latest business results published by large US companies could be interpreted as a warning sign for the US economy. Wall Street banks like Goldman Sachs and JP Morgan posted weak results. As a result, Goldman Sachs laid off more than 3,200 employees.
On Friday, Google’s parent company Alphabet announced that 12,000 employees would be laid off. Other companies like Netflix, Salesforce, and Meta Platforms have also announced layoffs. Bankers have warned of a slight recession.
Overall, there is hope that the US Federal Reserve will reconsider its tight monetary policy and loosen it this year. Therefore, investors assume that interest rates will not be as high. As a result, the prices of stocks and cryptocurrencies like Ethereum are now rising.
Possible FTX Reset
Finally, there is a catalyst for the recent bull run in the crypto market. There are signs that the FTX cryptocurrency exchange may resume operations. Bankruptcy trustee John Ray III has already identified more than $5 billion in liquid assets. If the crypto rally continues, it could mean that the company will be able to close the gap between assets and liabilities.
In his first interview this week, John Ray III said his team is working to restart the company. If it did happen, it would bode well for cryptocurrencies like Bitcoin and Ether.
By Audy Castaneda