Bitcoin Is Soaring. 3 Signs the Rally Is Real and 25% Gains Are Ahead.

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Cryptos prices are well off their recent lows but remain down this year.

Ozan Kose/AFP via Getty Images

Bitcoin prices were soaring on Wednesday as investors piled back into digital assets amid a return of risk sentiment in wider markets.

Analysts are keenly watching for signs that this rally has momentum—and where it could take prices after a recent rout.

The price of Bitcoin jumped 6% over the past 24 hours to $23,700, outperforming most other tokens and advancing to the highest levels since the largest crypto plummeted to as low as $18,000 from $30,000 in a severe selloff in mid-June.

“A short-term outlook for Bitcoin is bullish and it could go as high as around $29,000 this week,” Yuya Hasegawa, an analyst at crypto exchange Bitbank, wrote in a note.

Ether, the second largest token which has recently vastly outperformed its larger peer, gained 3% to $1,600. Smaller cryptos, or altcoins, were more mixed, with Solana 1% lower as Cardano shot up 7%. Memecoins—initially intended as internet jokes—were among the best performers as Dogecoin advanced 9% and Shiba Inu popped 8%.

Now three weeks out from the end of its worst quarter since 2011—a year in which Bitcoin crossed the $1 threshold for the first time—analysts are eyeing whether cryptos have formed a bottom following a period of big price declines. The market capitalization of digital assets has collapsed to $1 trillion from $3 trillion in November 2021, with some of the most severe declines coming in the last 12 weeks.

“Bitcoin prices have now traded below the Realized Price for over a month, with many signals that a deep and complete capitulation has occurred,” analysts at crypto intelligence firm Glassnode wrote in a note. “Numerous signals indicate that genuine bottom formation could be underway.”

Realized price refers to the average cost basis of Bitcoin—the book value of purchased Bitcoins divided by the number of tokens in circulation. At depressed price levels, this figure can reveal whether most holders are underwater.

Hasegawa’s bullish price target on Bitcoin implies that further gains in the range of 25% could be reached in coming days—but others are less convinced that this rally has legs and could carry cryptos higher.

“The rally is strong, but with short-term overbought conditions having returned already, we feel it is premature to call it the start of a lasting reversal,” Katie Stockton, the managing partner at technical research group Fairlead Strategies, wrote in a note.

From a technical perspective, Stockton is eyeing three milestones as proof that a sustained rally is in play. 

Bitcoin must break out above the $25,000 resistance level, and see a moving average convergence divergence (MACD)—which is a technical indicator—above zero each day in addition to a positive weekly signal, Stockton said. In addition, weekly stochastics, which are a momentum indicator, must be above 20% in an oversold upturn.

“If these positive technical developments occur, secondary resistance near $28,800 would be targeted for the relief rally, at a minimum,” Stockton said. “We would still view the rally within the context of negative long-term momentum and would not advocate rebuilding long-term positions until monthly indicators improve.”

Next week could hold another key catalyst for cryptos: A decision from the Federal Reserve on Wednesday on interest rates. While declines in cryptos have been partly due to cracks in the digital asset market—including the meltdown of stablecoin Terra and the failure of highflying hedge fund Three Arrows Capital—a correlation to stocks hasn’t helped

Having shown themselves to be largely correlated with other risk-sensitive assets, like stocks, Bitcoin and other tokens have followed the S&P 500 and Nasdaq Composite into bear market territory this year as investors fret over macro pressures. Facing the highest inflation in four decades, the Fed has already moved aggressively to raise interest rates in a bid to tame red-hot prices—but this risks spurring a recession.

“Bitcoin unexpectedly recovered its 200-week moving average and seems like it is building a groundwork for a trend reversal, but the market needs a little more assurance for deceleration in the pace of rate hikes by the Fed,” Bitbank’s Hasegawa said.

Write to Jack Denton at jack.denton@dowjones.com