Bitcoin has ended January with a 39.4% gain, marking its best month since a 40% rally in October 2021 and its strongest January since 2013. Trading at $22,910, the largest cryptocurrency has reached its highest level since August of last year and given its holders their best January in a decade.

According to Christopher Newhouse, an options trader with crypto market maker GSR, some explosive price action was seen at the start of January following the release of December’s CPI print. He believes that buyer side demand from institutional buyers, including macro driven traders and hedge funds, returned during the first two weeks of January, leading to initial short seller liquidations. 

Data from crypto derivatives aggregator CoinGlass shows that in the 12 days after the release of December’s inflation report on Jan. 12, $1.3 billion worth of short positions on bitcoin were liquidated, or $611 million net of long positions. However, over the past week, the trend has reversed with $331 million in long positions being liquidated, or $108 million net of short positions.

During the period between January 10 and 20, when the largest upward moves for bitcoin were seen, speculation-driven momentum traders returned to the market and were responsible for bitcoin breaking out of its range between $15,700 and $18,000.

It was noted by Newhouse that bitcoin’s pushes above $20,000 and $22,000 both occurred on Fridays as dealers had large amounts of negative exposure and selling towards the end of U.S. hours trading. Analysts believe that the next step for bitcoin will likely be determined in the aftermath of the Federal Reserve’s monthly rate hike decision.

Edward Moya, a senior analyst at Oanda, informed Yahoo Finance that the market was going to start to become more technically driven and that volatility was returning. Michael Safai, co-founder and partner with crypto trading firm Dexterity Capital, noted that the return of bitcoin buying appeared similar to what happened from July through early August. He mentioned over email that it typically takes about two months for the crypto market to stabilize after a major shock and that they were at that point following the FTX shock.

It was reported that the worst damage had been inflicted and investors were becoming relatively confident that there were no more negative surprises in store, as evidenced by the subdued reaction to the Genesis bankruptcy, with risk appetite starting to return gradually.

According to Coinmarketcap, the year-to-date total market capitalization for cryptocurrencies had increased by 24% to reach $1.05 trillion. Global crypto volume had also risen, with a 61% increase to $5.5 trillion, as reported by the crypto indexing platform Nomics.

Blockchain analytics platform Glassnode’s data showed that since bitcoin regained a price above $21,000, the current market rally had pushed the buyers of the largest cryptocurrency from 2019 and earlier back above their break-even point.

Moya was quoted as saying that “these psychological levels matter.”