Bitcoin is up 50% in 2023, outperforming major commodities and stock indexes. Industry insiders say the bank’s collapse has prompted investors to seek alternatives to the traditional banking system, and an expected slowdown in interest rate growth is helping bitcoin.
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Bitcoin is up 50% this year despite the collapse of major crypto-focused banks, outperforming major stock indexes and commodities.
On January 1, Bitcoin started trading at just over $16,500. It hovered around the $25,000 mark on Wednesday thanks to the rally that started on Sunday.
This year’s surge in price follows a 65% fall in bitcoin in 2022 following a series of major project and hedge fund collapses, bankruptcies, liquidity problems and the failure of FTX, one of the world’s largest cryptocurrency exchanges.
The recent increase came as a surprise given the closure of Silvergate Capital and Signature Bank, two of the crypto industry’s largest lenders. And a Silicon Valley bank, considered the backbone of the tech startup industry, also failed.
“Bitcoin’s 50% surge in 2023 is a reflection of how battered it was after the FTX collapse, the interest rate forecast change and the failure (and resurrection) of SVB,” said Antony Trenchow, co-founder of crypto trading platform Nexo. CNBC.
Bitcoin is still down more than 60% from its peak of nearly $69,000 in November 2021.
Here are some of the main reasons behind the rise of Bitcoin.
The bank is collapsing
While the collapse of Silvergate, Signature Bank and SVB sent shockwaves through financial markets, Bitcoin’s rebound could also be fueled by these same failures, according to Vijay Iyer, vice president of corporate and international development at crypto exchange Luno.
“Last week’s events involving the bankruptcy of SVB and other banks also highlighted the power of decentralized currencies that people can fully store and own,” Aiyar said. “Decentralized finance is starting to reach a lot more people.”
Bitcoin is called a decentralized currency because it is not issued by a single entity, such as a central bank. Instead, it relies on an underlying technology called blockchain, and its network is supported by the community.
However, US regulators had to step in to guarantee customer deposits in these banks.
Nexo’s Trenchev said the intervention “reminded investors of the structural weaknesses of the US banking system and the underlying US dollar, the reasons we’ve seen the move to bitcoin this week.”
Proponents of bitcoin argue that the digital currency is a way for investors to protect themselves from central bank moves, particularly quantitative easing and looser monetary policy, which they believe undermine the fictitious currency’s value. Proponents point to bitcoin’s finite number as a key feature of it being a store of value.
Interest rate forecast
The bank’s collapse followed a year of interest rate hikes by the US Federal Reserve. SVB’s problem was that it had to sell assets, mostly Treasuries, to shore up its balance sheet as depositors withdrew. But he sold those assets at heavy losses because rising interest rates drove down the price of Treasuries.
Some analysts have suggested that the strain on the financial sector could slow the pace of Fed rate hikes, which could add to the risk in assets such as stocks and bitcoin. This came even after days before the bank’s collapse, Fed Chairman Jerome Powell said rates were likely to be higher than policymakers expected.
“In a matter of days, we went from a hawkish Powell to an environment where economists were predicting that the Fed might not even raise rates in March, which would benefit bitcoin,” Trenchow said.
“It was said that the Fed would only stop raising rates when they broke something, and now that something is broken, attention has turned to Bitcoin.”
Bitcoin vs Stocks
Bitcoin is up 50% this year. On the contrary, technological Nasdaq, with which bitcoin has been closely linked in the past, is up 12% year-to-date. The S&P 500 grew by 2.5%.
goldseen as an asset that investors flock to in times of market turmoil, 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 up about 60% since the beginning of the year.
Among the major digital currencies, ether this year grew by 42%, while brine grew by more than 100%.