The cryptocurrency market has been on a noticeable surge in the past week. Coin prices are rising significantly, and investor sentiment is growing. The industry is currently valued at $1.01 trillion. It is the first -time crypto has reached this level since November 2022, before the collapse of the now-defunct FTX exchange.
Crypto Surge Generated By a Drop in Inflation
The current drop in inflation in the United States is the primary driver of the recent crypto surge. The Federal Reserve has been implementing aggressive interest rate hikes in order to control inflation, and these policies are starting to yield results.
The Consumer Price Index (CPI) reported last week showed that inflation dropped by 0.1% last month, with the overall rate now standing at 6.5%. This has led many investors to speculate that the Fed could ease some of its monetary policies, allowing investors the freedom to purchase risky assets once more, especially cryptocurrencies.
Another indicator of the market’s health is the drop in the dollar. Crypto prices and the dollar have moved in inverse directions for the past year. With inflation now dropping, investors appear to be rotating out of the fiat currency.
Other Market Conditions
The US Dollar Index (DXY) shows that the dollar has dropped in value significantly since the year started. This reflects a willingness from investors to rotate out of it and purchase other assets instead.
However, the market is not out of the woods yet, as the Federal Reserve’s fight against inflation is still ongoing. If the Fed’s experts don’t think an interest rate slash is prudent at the Federal Open Market Committee (FOMC) meeting this month, then the crypto market’s journey will continue to be uncertain
Additionally, the fallout of the FTX exchange is still resonating, and several big names in crypto are still trying to navigate the market without going bankrupt.
Many investors are now wondering if the market can reach 5x growth this year, as it surpassed the trillion-dollar peg recently. However, the current market conditions, including the drop in inflation and the dollar, could be indicative of a crypto surge topping out at $5 trillion in 2023.
If Fidelity Investments opens it’s new crypto trading platform for managers and investors, their $9.6-trillion-dollars in liquidable assets could be a huge part of that pump. And it could lead to market cap going even further, if other ‘smart money’ joins the party.