- Bitcoin is up 50% this year, outperforming major stock indexes and commodities, despite the collapse of major crypto-focused banks.
- On January 1st, bitcoin started trading at just over $16,500. It was hovering around $25,000 on Wednesday thanks to the rally that started on Sunday.
- The recent surge is somewhat of a surprise, given the closures of two of the crypto industry’s largest lenders, Silvergate Capital and Signature Bank.
- Industry insiders said that anticipation of a slower pace of interest rate hikes from the US Federal Reserve is helping bitcoin.
Bitcoin It is up 50% this year, outperforming major stock indexes and commodities, despite the collapse of major crypto-focused banks.
On January 1st, bitcoin started trading at just over $16,500. It was hovering around $25,000 on Wednesday thanks to the rally that started on Sunday.
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This year comes after bitcoin crashed 65% in 2022 following projects and hedge funds, bankruptcies, liquidity issues and the failure of one of the world’s largest cryptocurrency exchanges, FTX.
The recent surge is somewhat of a surprise, given the closures of two of the crypto industry’s largest lenders, Silvergate Capital and Signature Bank. And the Silicon Valley banks seen as the backbone of the technology startup industry also failed.
Antoine Trenchev, co-founder of crypto trading platform Nexo, said: “Bitcoin’s 50% surge in 2023 is a reflection of how beaten it was after the FTX collapse, the changing interest rate outlook, and the failure (and resurgence) of SVB. ” CNBC.
From its peak of around $69,000 in November 2021, bitcoin is still down more than 60%.
Here are some of the main reasons why bitcoin is on the rise.
bank collapse
After the collapses of Silvergate, Signature Bank and SVB sent shock waves through financial markets, bitcoin’s rebound could be fueled by those same failures, according to Vijay Iyer, vice president of corporate development and international at crypto exchange Luno.
“The events surrounding the failure of SVB and other banks last week have also highlighted the power of decentralized currencies that can be fully custodial and held by individuals,” Iyer said. “Decentralized finance in terms of a concept for many more people is now starting to hit home.”
Bitcoin is called a decentralized currency because it is not issued by a single entity like a central bank. Instead, it relies on an underlying technology called blockchain and its network is maintained by a community.
However, US regulators had to step in to guarantee customer deposits in these banks.
Nexo’s Trenchev said the intervention “reminds investors of the structural shortcomings of the US banking system and the US dollar underpinning it, which is why we’ve seen bitcoin take flight this week.”
Bitcoin proponents have claimed that the digital currency is a way for investors to protect themselves from central bank moves, particularly quantitative easing and loose monetary policy, which they say erodes the value of fiat currency. Proponents point to bitcoin’s finite supply as its key feature as a store of value.
interest rate outlook
The bank’s collapse came a year after the US Federal Reserve raised interest rates. The SVB’s issue was that it had to sell assets, mainly Treasuries, to shore up its balance sheet due to the withdrawal of funds by depositors. But it sold those assets at a heavy loss as interest rate increases eroded the value of Treasuries.
Some analysts have suggested that stress on the financial sector could slow the pace of rate hikes by the Fed, which could help risk-on assets like stocks and bitcoin. Fed Chair Jerome Powell said days before the bank collapsed that rates were likely to go higher than policymakers expected.
“Within a few days we went from an aggressive Powell to an environment where economists were predicting that even if the Fed could not raise rates in March, bitcoin would benefit,” Trenchev said.
“It has been said that the Fed will only stop raising rates if they break something, and now that something has broken, the attention has turned to bitcoin.”
bitcoin vs stock
Bitcoin has gained 50% this year. In contrast, tech-heavy nasdaqwhich has been closely correlated with bitcoin in the past, is up 12% so far this year. S&P 500 is up 2.5%.
SleepWhich is seen as an asset that investors look to during times of market turmoil, up just over 3% this year.
There aren’t many commodities or stock indexes that have outperformed bitcoin. With respect to individual shares, meta Year to date is about 60%.
In major digital currencies, ether There has been an increase of 42% this year, while solana is greater than 100%.
Credit: www.cnbc.com /