Bitcoin and Ethereum Gain Over 5% Overnight. Is This the Start of a Rebound?

We'll need a lot more days of gains before we can talk about a recovery.

After months of slumping crypto prices, investors awoke to a glimmer of hope this morning. Bitcoin (BTC) was up over 5% and Ethereum (ETH) was up over 6%. Many other cryptocurrencies were in the green, including Cardano (ADA) which at one point was up 15% in 24 hours. Bitcoin finally ended a record nine-week string of weekly losses, retaking the $31,000 barrier.

Is this the start of a crypto rebound?

Today's price increases came on the back of some positive U.S. job news as well as moves from China to ease its COVID restrictions. This sparked gains on the stock market, which in turn helped cryptocurrency prices. However, many analysts continue to predict further losses and volatility for crypto. It would be overly optimistic to see this as any kind of a rebound.

Put simply, one day of positive price action does not signify a recovery. It's good to see some gains, but after six months of stagnation and losses, the crypto industry has a long way to go before we can talk about an end to this bear market. The Crypto Fear and Greed Index, which measures market sentiment, was still in extreme fear territory and Bitcoin is still trading at less than 50% of its all-time high.

Crypto market still faces significant challenges

One of the main reasons for Bitcoin's ongoing price slump is that today's economic climate is very different from the one that drove last year's extraordinary growth. The current combination of uncertainty and economic tightening have caused investors to move away from high-risk assets like crypto. Neither of those things look likely to change any time soon.

The Federal Reserve is pulling back on its pandemic stimulus measures in an attempt to tackle the high inflation that's behind spiraling living costs. The resulting risk-averse environment has had a big impact on crypto prices. This means it's worth watching the next batch of inflation figures that are due later this week. If inflation isn't going down as fast as the Fed wants, we may see more dramatic interest rate hikes, and corresponding crypto price drops.

On top of which, the specter of increased regulation continues to loom over the industry. The collapse of Terra's (LUNA) ecosystem has increased the regulatory pressure on stablecoins. Plus, we'll see progress on the analysis and recommendations requested in President Biden's executive order. The exact shape crypto regulatory framework takes will have a big impact on both short and long-term price action.

What it means for investors

Many crypto investors have seen the value of their portfolios drop dramatically and hope for an end to what people are now calling another crypto winter. Sadly, it may be some time before prices rally again. Indeed, we may see further losses before there's any kind of rebound.

If you're considering cutting your losses and selling, it's understandable. Just remember that if you panic sell now, you won't benefit from any future gains. There can be good reasons to sell your crypto. For example, you may no longer believe in a project's long-term prospects. However, don't allow price drops -- even significant ones -- to drive your decision.

On the other end of the spectrum, some investors are watching for signs of a rebound because they want to buy the dip. This can be a good strategy, but there are a few caveats. First, it's important to only invest money you can afford to lose. Second, make sure you understand the risks. There are no guarantees you'll make money, even if you buy at relatively low prices. Finally, do your research and try to invest for the long term. If this is a crypto winter, only the strongest of projects will survive and investors need to tread extremely carefully.