Bitcoin Soars, Then Retreats. What’s Behind This Week’s Rollercoaster? What’s Ahead?

Despite its Thursday drop, bitcoin has gained approximately 13% in the last seven days. Although macroeconomic concerns continue, the increase demonstrates investor optimism.

Bitcoin has had a wild week, with the largest cryptocurrency by market value reaching numerous six-month highs before falling precipitously late Thursday, but then recovering again.

Bitcoin (BTC) was last trading at $24,557, up over 3.1% in the last 24 hours and off a weekly high above $25,000 for the first time since August.

Despite the Thursday slump, bitcoin was still trading 13% higher than it was seven days earlier. The reasons for its recovery from earlier support near $22,000, following collapse, and subsequent comeback have varied. They highlight cryptos’ continued susceptibility to macroeconomic factors and industry-specific developments, even if BTC has occasionally acted counterintuitively.

Investor euphoria overrode concerns about a stablecoin crackdown and a lackluster Consumer Price Index (CPI) late Tuesday, sending bitcoin, ether, and most other cryptos rising. Riyad Carey, research analyst at crypto data firm Kaiko, told CoinDesk that bitcoin’s rise was “a bit of a euphoric bounce that regulatory issues have momentarily cooled off.”

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

Following 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, markets became wary, and bitcoin dropped more than $1,000 in a few hours.

BTC’s “intermediate-term overbought conditions present a headwind with key resistance around $25,200 nearby, which enhances the chance of a short-term downturn. “Support is approaching the 200-day moving average of $20,000,” Katie Stockton, founder of technical analysis-based research firm Fairlead Strategies, wrote in an email to CoinDesk.

“Once Bitcoin reached the $25,000 level and failed to extend higher, many active traders locked in profits,” said Edward Moya, senior market analyst at foreign exchange market maker Oanda, in an email Friday. Short-term appetite for risky assets may wane, which might sustain Bitcoin consolidation as long as a regulatory crackdown does not bring down a key stablecoin or crypto business.”

By Friday afternoon, investors appeared to have shook off the recent gloomy news, pushing bitcoin back into the $25,000 range. Throughout the most of 2022, cryptos outperformed the equity markets with which they were associated. Ether (ETH), the second most valuable cryptocurrency by market cap, has gained more than 12% in the last week.

According to Oanda’s Moya, the broader impact of the current U.S. crypto regulatory drive will not be obvious for some time, allowing markets to sort themselves out, and the industry itself to remain flush with exciting initiatives. “There’s always a moment when regulators and politicians want to hear from the market that they’re going to impact,” Moya said in an interview with CoinDesk. “But I haven’t seen anything that prevents this market from continuing to expand, to see investment, and to have projects completed that would hopefully drive the use case argument for it,” he noted, adding that a lot of money may abandon stablecoins for other sorts of crypto investments.

To be sure, some commentators believe that regulatory overreach may deter investment and disrupt markets. “Based on their refusal 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 strict US regulations could benefit other crypto hubs in Europe and Dubai.

Yet, investors remained mostly bullish on cryptocurrency markets. Instead of returning to the more aggressive rises of 2022, they envision the Fed approving a second consecutive 25 basis point rate hike at its next Federal Open Market Committee (FOMC) meeting in March. They also anticipate that any economic contraction will be moderate, resulting in the so-called “safe landing” that central bankers prefer.

“Although higher-rate expectations weigh on the values of future cash flows, increased global liquidity is helping to raise asset prices,” wrote Lucas Outumuro, head of research at blockchain analytics platform IntoTheBlock, in a Friday newsletter.

Nevertheless, Moya stated on Thursday that “bitcoin resilience” has been “remarkable” in light of bond market volatility and a regular stream of regulatory stories.

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 major priority is to put consumer protections in place. That is where the focus will eventually go to these prospective probes. I believe a portion of the market is becoming accustomed to this type of expectation.”