- Bitcoin is up 50% this year despite major crypto-focused banks collapsing, beating major stock and commodity indices.
- On January 1, bitcoin began trading at just over $16,500. On Wednesday, it was hovering around the $25,000 mark, thanks to a rally that started on Sunday.
- The recent rise was somewhat surprising, given the shutdown of Silvergate Capital and Signature Bank, two of the biggest lenders in the crypto industry.
- Industry insiders said the anticipation of a slower pace of interest rate hikes from the US Federal Reserve is helping bitcoin.
Bitcoin is up 50% so far in 2023, beating major stock and commodity indices. Industry insiders said the bank meltdowns have prompted investors to seek alternatives to the traditional banking system and there is also anticipation of a slowdown in interest rate rises, which is helping the bitcoins.
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Bitcoin is up 50% this year despite major crypto-focused banks collapsing, beating major stock and commodity indices.
On January 1, bitcoin began trading at just over $16,500. On Wednesday, it was hovering around the $25,000 mark, thanks to a rally that started on Sunday.
The price surge this year comes after bitcoin crashed 65% in 2022 after a number of major project and hedge fund collapses, bankruptcies, liquidity issues and the failure of FTX, one of the largest cryptocurrency exchanges in the world.
The recent rise was somewhat surprising, given the shutdown of Silvergate Capital and Signature Bank, two of the biggest lenders in the crypto industry. And Silicon Valley Bank, considered the backbone of the tech startup industry, also failed.
“Bitcoin’s 50% rise in 2023 reflects how much it has been beaten down after the collapse of FTX, the changing outlook for interest rates, and the failure (and resurrection) of SVB,” said Antoni Trenchev, co-founder of the Nexo crypto trading platform. CNBC.
Since peaking near $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.
While the collapse of Silvergate, Signature Bank and SVB sent shockwaves through financial markets, bitcoin’s rebound could also be fueled by those same failures, according to Vijay Ayyar, vice president of business development and international at Luna Exchange.
“The events of the past week around the failure of SVB and other banks have also highlighted the power of decentralized currencies that people can fully own and own,” Ayyar said. “Decentralized finance is starting to catch on as a concept for a lot more people now.”
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 have had to step in to guarantee customer deposits with these banks.
Nexo’s Trenchev said the intervention “reminds investors of the structural deficiencies in the US banking system and the US dollar that underpins it, why we’ve seen a flight to Bitcoin this week.”
Bitcoin proponents have argued that digital currency is a way for investors to hedge against central bank moves, especially quantitative easing and looser monetary policy, which they say erodes the value of the currency. Fiat money. Proponents point to bitcoin’s limited supply as a key feature of its store of value.
The collapse of the banks came after a year of interest rate hikes by the US Federal Reserve. SVB’s problem was that it had to sell assets, mainly treasury bills, to shore up its balance sheet as depositors withdrew funds. But he sold those assets at a heavy loss as rising interest rates drove down the price of Treasuries.
Some analysts have suggested that stress on the financial sector could slow the pace of Fed rate hikes, which could help risky assets, such as stocks and bitcoin. It came even after Fed Chairman Jerome Powell said days before the bank’s collapse that rates were likely to be higher than policymakers expected.
“In the space of a few days, we went from a bellicose Powell to an environment where economists were predicting the Fed might not even raise rates in March, in favor of Bitcoin,” Trenchev said.
“It has been said that the Fed will only stop raising rates when it breaks something, and now that something is broken, attention has turned to Bitcoin.”
Bitcoin is up 50% this year. In contrast, the tech-heavy Nasdaq, to which bitcoin has been closely correlated in the past, is up 12% year-to-date. The S&P 500 is up 2.5%.
Gold, which is seen as an asset investors flock to during turbulent market times, is up just over 3% this year.
There aren’t many commodities or stock indices that have beaten bitcoin. In terms of individual stocks, Meta is up around 60% since the start of the year.
Among the major digital currencies, ether is up 42% this year, while solana is up over 100%.