Bitcoin Soars, Then Retreats: What’s Behind This Week’s Roller Coaster? What’s Ahead?

It’s been a wild week for bitcoin with the largest cryptocurrency by market capitalization, reaching multiple six-month highs before retreating suddenly late Thursday but then rallying again.

Bitcoin (BTC) was recently trading over $24,557, up almost 3.1% over the past 24 hours and off a weekly high early Thursday when BTC surpassed $25,000 for the first time since August.

The Thursday drop notwithstanding, bitcoin was still changing hands 13% higher than it was seven days ago. The reasons for its rebound from previous support around $22,000, subsequent decline and then rally have varied. They underscore cryptos’ ongoing sensitivity to macroeconomic conditions and industry-specific events, even if BTC sometimes behaved counterintuitively.

Late Tuesday, investor optimism trumped concerns about a stablecoin crackdown and tepid consumer price index (CPI) to send bitcoin, ether and most other cryptos soaring. In an interview with CoinDesk, Riyad Carey, research analyst at crypto data firm Kaiko, said that bitcoin’s upturn was “a bit of a euphoric rally that regulatory issues have cooled off temporarily.”

Earlier in the week, Darius Tabatabai, co-founder of Vertex Protocol, a London-based decentralized exchange, said that “we may have the makings of another bull market,”

A day later, markets turned wary and bitcoin dropped more than $1,000 in a few hours amid hawkish remarks by Federal Reserve officials, the announcement of a U.S. Securities and Exchange Commission (SEC) lawsuit against disgraced Terraform Labs co-founder Do Kwon, and a disappointing wholesale prices report suggesting that inflation remained stubbornly resilient.

BTC's “intermediate-term overbought conditions provide a headwind with important resistance around $25,200 nearby, which increases the likelihood of a short-term pullback. Support is near the 200-day [moving average] $20,000,” Katie Stockton, founder of technical analysis-based research firm Fairlead Strategies, wrote to CoinDesk in an email.

Edward Moya, senior market analyst for foreign exchange market maker Oanda, noted in an email Friday that “after Bitcoin tested the $25,000 level and failed to extend higher, many active traders locked in profits. Appetite for risky assets might struggle over the short term, which could support a bitcoin consolidation as long as a regulatory crackdown does not take down a key stablecoin or crypto company.”

By Friday afternoon, investors seemed to have shaken off the latest discouraging news to push bitcoin just a few dollars short of $25,000 again. And cryptos continued to outperform equity markets to which they correlated for much of 2022. Ether (ETH), the second-largest crypto in market value, has risen more than 12% over the past week.

Oanda’s Moya believes that the larger outcome of the new U.S. crypto regulatory push won't be apparent for a while, allowing markets to sort themselves out, and that the industry itself remains flush with interesting projects. “There’s always a period when the regulators and lawmakers want to hear from the market that they're going to impact,” Moya told CoinDesk in an interview. “But I haven't seen anything that take away from this market from continuing to grow, to see investment and to have projects done that could hopefully drive the use case argument for it,” he added, although he added that lot of money might leave stablecoins for other types of crypto investments.

To be sure, some observers think that regulatory overreach could drive away investment and spook markets. “Based on their unwillingness to come to the table, it’s clear that the SEC’s motivations of late are being driven by a desire to protect the financial incumbents – that is, Wall Street,” Al Morris, founder of the decentralized publishing protocol Koii Network, told CoinDesk in an email, adding that overly harsh U.S. regulations could benefit other crypto hubs in Europe and Dubai.

But investors remained largely optimistic about crypto markets. They see the Federal Reserve approving a second consecutive 25 basis point rate hike at its next Federal Open Market Committee (FOMC) meeting in March instead of returning to the more aggressive increases of 2022. And they hope that any economic contraction will be mild – a so-called safe landing that central bankers are seeking.

“While forecasts of higher rates weigh down on the values of future cash flows, increasing global liquidity is helping raise asset prices,” Lucas Outumuro, head of research at blockchain analytics firm IntoTheBlock, wrote in a Friday newsletter.

Meanwhile, Moya noted on Thursday that “bitcoin resilience” has been “impressive” given bond market volatility and steady flow of regulation headlines.”

But he added cautiously in a follow-up interview with CoinDesk: “I think we have to live week by week and right now it seems that the main goal is to put consumer protections in place. That will ultimately be where things get fixated on these potential investigations. I think part of the market is also getting used to that type of expectation.”