In a recent article, I talked about my decision to buy more crypto instead of selling or panicking during the recent market downturn. And it has already paid off, as Bitcoin has crossed $26,000 for the first time since June 2022. Despite the ongoing market volatility, there are several reasons why the market has decided to pump back up, and I will share four of them in this article. Additionally, I will provide my insights on whether you should be buying more or selling the rest of your crypto holdings.
One of the main reasons behind the recent pump in the crypto market is the declining faith in banks and the government's ongoing bailouts. Many people are feeling uneasy as the government continues to bail out banks, similar to what happened during the 2008 financial crisis. People and companies that are not FDIC insured are getting bailed out, and the FDIC insurance policy of $250,000 is being questioned.
The Federal Reserve recently announced a new Emergency Loan program called the Bank Term Funding Program, which would help banks meet the needs of their depositors. However, Treasury Secretary Janet Yellen approved a plan to provide up to $25 billion as a backstop for the new program, allowing banks and lenders to pledge treasuries and mortgage-backed securities as collateral for cash. This has raised concerns among many, as it essentially means that the US government is lending money to banks, which in turn are using the same bonds as collateral to borrow even more cash from the government. With the FDIC having limited funds of only about $125 billion in their balance sheet to secure over $9.9 trillion in covered assets, the reality is that they may not have enough funds to cover all the banks if they were to fail. This is a little-known fact that is not widely discussed, but it is a concerning issue that is contributing to the recent pump in the crypto market.
Inflation Cools Down, But Uncertainty Remains
Another reason for the recent pump in the crypto market is the cooling down of inflation in the US. After a sharp rise in headline inflation of 6.4% in the previous month, inflation only rose by 6% in February.
This has take it to believe that the Federal Reserve's monetary policies and the government's stimulus measures are not causing runaway inflation, which has helped to alleviate some concerns in the market. However, despite the lower inflation rate,Uncertainty still exists as the economy works to recover from the pandemic's consequences. and the long-term impacts of the government's stimulus measures are yet to be fully understood.
Investor Sentiment and Market Psychology
Investor sentiment and market psychology also play a significant role in the recent pump in the crypto market. Market participants often respond to market news, trends, and sentiments, which can sometimes lead to irrational behavior.
The recent oversold to overbought territory swing in Bitcoin's daily RSI (Relative Strength Index) within a four-day period, something that has never been seen before in the past decade, has fueled investor optimism and FOMO (Fear of Missing Out). The fear of missing out on power gains as the market moves upward can drive investors to buy more crypto, contributing to the market pump.
Conclusion:
Despite the ongoing market volatility and uncertainties, the crypto market, including Bitcoin, has been pumping in recent days. Several factors, including declining faith in banks and government bailouts, cooling down of inflation, and investor sentiment, have contributed to this pump.
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