Bitcoin Price Breaks a Key Level, Can It Fully Recover?

Is this the start of yet another comeback or just a momentary break before another downfall? 

Bitcoin seems to have stabilized. Prices have started a slight rebound and are now at their highest in two weeks. The king of cryptocurrencies exceeded the symbolic threshold of $40,000 per unit for the first time on Friday, Feb. 4, a first since January 22.

It was trading around $41,627 at the time of writing. Admittedly, we are still far from the record of $69,044.77 crossed on November 10, but it is a level that will undoubtedly please cryptocurrency evangelists.

Bitcoin is pulling the rest of the cryptocurrency market in its wake: Ether, the native currency of the Ethereum blockchain, was up 5.9% on Saturday to $3,029.42, while its main rivals Solana, Avalanche gained 9, 2% and 9.5%. Solana, the Visa of Crypto, suffered this week from the theft of more than $320 million from the decentralized finance (DeFi) project WormHole, that links Solana blockchain with other decentralized blockchain networks.

The market as a whole has picked up some color: the crypto market value has thus risen a little above 2 trillion dollars, according to CoinGecko. It thus recovered at least $300 billion in just a few days.

These gains, which are just as violent as the recent falls, are further evidence of the volatility of cryptocurrencies.

In terms of fundamentals, nothing really justifies this rebound. 

Is This a Bitcoin Short Squeeze?

The strong January monthly employment report published on Friday was normally likely to cause cryptocurrency prices to decline. Because in theory, the figures published by The U.S Labor Department should push the Federal Reserve to raise interest rates aggressively to avoid overheating the labor market. Bitcoin traditionally reacts poorly to tighter monetary policy, which benefits less risky financial assets more.

The Bureau for Labor Statistics said 467,00 new jobs were created last month, with the headline unemployment rate rising from a post-pandemic low to 4%. The January tally was firmly ahead of the Street consensus forecast of 150,000.

But at the same time, Marathon Digital Holdings, one of the largest enterprise Bitcoin self-mining companies in North America, announced on Friday that it had increased the number of bitcoins in its possession to 8,595 bitcoins worth $338 million in January.

By continuing to produce bitcoin at such a high rate – +816% compared to January 2021 – Marathon shows that it believes in bitcoin for the long term.

“In January, we improved our bitcoin production 816% year-over-year as we produced 462 bitcoin during the month and increased our bitcoin holdings to 8,595 BTC,” said Fred Thiel, Marathon’s CEO, in a press release. 

He added that: “We have bolstered our technical team to research immersion and other solutions that may allow us to further optimize the performance of our mining fleet.”

“Bitcoin shrugged off the payroll slump and is rallying on momentum buying. The $40,000 ceiling may get tested,” Edward Moya, senior market analyst at the foreign-exchange brokerage Oanda wrote in a note.

It is not excluded that the recent revival is due to a short squeeze.

A short squeeze often occurs when many investors who have bet that security or stock will fall all try to liquidate their positions at the same time. This race usually causes a high demand for stock or financial asset.