Why is the crypto market up today?

Bitcoin (BTC) volatility is finally giving BTC bulls what they want — but why now?

After drifting lower for months and spending recent weeks in a tiny trading range, BTC/USD has delivered 24-hour gains in excess of 7%.

Hitting its highest levels since mid-September, the largest cryptocurrency is rewarding those who refused to sell and punishing shorters to the tune of around $1 billion.

The change of trend has come quickly and caught many by surprise, as evidenced by that liquidation tally.

Behind the scenes, however, little has changed — macroeconomic conditions have not undergone major upheaval compared to a week ago, and internal problems for Bitcoin, such as miner strain, remain the same.

What could have caused BTC price action to break out of what could end up being a downtrend finally breaking after an entire year?

Cointelegraph takes a look at three major factors influencing crypto market strength in the current environment.

Fed could change its tune on rate hikes

When Cointelegraph reported on why the crypto market saw fresh losses last week, the United States Federal Reserve was first on the list.

Concerns focused on unwavering policy keeping the U.S. dollar strong and rates surging higher for the foreseeable future — the worst case scenario for risk assets.

Nonetheless, the past week has seen the results of that policy spill over into other economies, notably Japan, which made repeated interventions in its exchange market to prop up the flagging yen.

At the same time, rumors are gathering over the outlook for rate hikes as the Fed runs out of room to maneuver. After next month’s hike, suspicions are that policy will begin to U-turn, making smaller hikes in subsequent months before reversing altogether in 2023.

Important upcoming dates for the Fed are:

Oct. 28: Personal Consumption Expenditures (PCE) price indexNov. 1-2: Federal Open Market Committee (FOMC) meeting, rate hike decision

As such, any signal that the Fed is preparing to soften its hawkish stance is being seized on by markets weary from a year of quantitative tightening (QT).

November's FOMC meeting is still overwhelmingly expected to result in a 0.75% rate hike, matching September and July, according to CME Group's FedWatch Tool.

Bitcoin volatility snaps record low levels

Analyzing data from Cointelegraph Markets Pro and TradingView, it becomes clear that BTC/USD has been too quiet for too long.

This is especially visible in the Bollinger Bands volatility indicator, these rarely closer together in Bitcoin’s history and demanding a breakout out for weeks.

This month, Bitcoin volatility even fell below that of some major fiat currencies, making BTC look more like a stablecoin than a risk asset.

Analysts had long expected the trend to undergo a violent change, however, and true to form, crypto markets did not disappoint.

A look at the Bitcoin historical volatility index (BVOL), recently at multi-year lows seen only a handful of times, shows that Bitcoin still has a way to go to abandon this characteristic.

“Pretty funny that volatility has been so compressed and we’ve become so conditioned as market participants that the slightest 3% move feels like a 15-20% move,” William Clemente, co-founder of crypto research firm Reflexivity Research, commented.

Dollar eyes a new chapter

After a parabolic uptrend throughout 2022, the U.S. dollar is only just beginning to show signs of weakness.

Related: Analyst puts Bitcoin price at $30K next month with breakout due

The U.S. dollar index (DXY) recently hit its highest levels since 2002, and momentum may yet return to take it even higher — at the expense of risk assets and major currencies alike.

For the meantime, however, DXY is under pressure, and its descent came in lock step with a return to form for Bitcoin and altcoins.

This flags an issue that Bitcoin bulls are keen to shake — ongoing strong correlation to traditional markets and inverse correlation with the dollar.

“Bitcoin now has a correlation with Gold of about 0.50, up from 0 in mid-August,” trading firm Barchart revealed this week.

“While the correlation is higher with $SPX (0.69) and $QQQ (0.72), the correlations have decreased of late.”

Fellow analyst Charles Edwards, founder of crypto asset manager Capriole, noted that Bitcoin macro price bottoms are often accompanied by increasing gold correlation.

Scott Melker, the analyst and podcast host known as “The Wolf of All Streets,” also confirmed a changing relationship between Bitcoin and the Nasdaq.

“Nasdaq futures are down. Bitcoin is up. The short term correlation between the two has disappeared over the past few weeks. I will take it,” he summarized.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.