Bitcoin had a tricky 2022. Now investors are looking toward 2023 with caution with regards to cryptocurrencies.
Thomas Trutschel | Photothek | Getty Images
Bitcoin continued its climb Monday as traders took news of one other crypto bankruptcy of their stride and placed bets on a Federal Reserve “pivot” to cutting rates of interest.
The value of the No. 1 token briefly topped $23,100 Monday, after touching $23,333.83 Saturday for the primary time since Aug. 19, based on Coin Metrics. The jump brings bitcoin up almost 39% because the start of January.
related investing news
Ether, the second-biggest digital coin, rallied as high as $1,664.78 on Saturday. That is the first time it has surpassed $1,600 since Nov. 7, 2022. It was last trading at $1,637.40 apiece.
Bitcoin has kicked off 2023 on a positive note, with investors hoping for a reversal within the monetary tightening that spooked market players last 12 months.
The Fed and other central banks began cutting rates of interest in 2022, shocking holders of dangerous asset classes, like stocks and digital tokens. Publicly-listed tech stocks and personal enterprise capital-backed start-ups particularly took a beating, as investors sought protection in assets perceived as safer, akin to money and bonds.
A chart showing bitcoin’s year-to-date price performance; the digital currency has climbed nearly 39% because the start of January.
With inflation now showing signs of cooling within the U.S., some market players are hopeful that central banks will start easing the pace of rate rises, and even slash rates. Economists previously told CNBC they predict a Fed rate cut could occur as soon as this 12 months.
“Fed tightening appears to be lighter and inflation less of a risk,” Charles Hayter, CEO of crypto data site CryptoCompare, said in emailed comments to CNBC. “There’s hope there can be more caution to rate rises globally.”
The Fed is prone to keep rates of interest high in the intervening time. Nevertheless, some officials on the bank have recently called for a discount in the scale of quarterly rate hikes, wary of a slowdown in economic activity.
The world’s top digital currency, bitcoin, is “increasingly looking prefer it has put in its bottom,” based on Vijay Ayyar, vp of corporate development and international at crypto exchange Luno.
Bitcoin short sellers have been squeezed by sudden upward moves in prices, based on Ayyar. Short selling is an investment strategy whereby traders borrow an asset after which sell it within the hope that it’s going to depreciate in value.
A wipe-out of those short positions sparked by the rising price of bitcoin has added “fuel to the hearth,” Ayyar said, as short sellers are forced to cover their bets by buying back the borrowed bitcoin to shut them out.
What crypto collapse?
Investors don’t appear to have been greatly perturbed by the collapses of top crypto corporations, stemming from the fallout of digital currency exchange FTX’s insolvency in November.
Last week, the lending arm of Recent York-based crypto investment firm Genesis became the latest casualty of the crypto crisis, looking for bankruptcy protection in a “mega” filing listing aggregate liabilities starting from $1.2 billion to $11 billion.
“The Genesis debacle has been playing out for some time and is probably going priced in already. FTX, then again, has already had a major impact on many investors, on market psychology and on the costs of several toxic assets,” Mati Greenspan, founder and CEO of crypto investment advisory firm Quantum Economics, told CNBC.
“It needs to be noted nonetheless that the value on bitcoin itself is sort of limited since FTX did not have any on their balance sheets.”
Bitcoin continues to be about 67% off its all-time high, despite its recent surge.
The most recent crypto plunge is different from past cycles, largely as a consequence of the role played by leverage. Major crypto players became entangled in dangerous lending practices, offering lofty yields that many investors now say were unsustainable.
This began in May with the collapse of terraUSD — or UST — an algorithmic stablecoin that was purported to be pegged one-to-one with the U.S. dollar. The failure of UST brought down terraUSD’s sister token luna and hit corporations with exposure to each tokens.
Three Arrows Capital, a hedge fund with bullish views on crypto, plunged into liquidation due to its exposure to terraUSD.
Then got here the November collapse of FTX, certainly one of the world’s largest cryptocurrency exchanges. It was run by Sam Bankman-Fried, an executive who was often within the highlight.
The fallout from FTX continues to ripple across the cryptocurrency industry. Roughly $2 trillion of value has been erased from the general crypto market because the peak of the crypto boom in November 2021, in a deep downturn often known as “crypto winter.”
One analyst cautioned that technical indicators suggest there could possibly be some pullback from the token’s recent rally.
Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, said that while bitcoin’s trend indicators are “generally signaling a robust upward trend,” its relative strength indicator, or RSI, “is diverging from the value’s upward movement and beginning to slide down, which will not be a great sign for the present price trend.”
“Bitcoin could test its August high and be supported on the $20k~$21k level, but with its RSI’s divergence and a pair of huge tech earnings ahead this week, it could get quite unstable,” Hagesawa said in a Monday note.
The recent bitcoin price boost has nevertheless offered some investors hope that the ice could also be beginning to thaw.
Greenspan said upward moment in bitcoin is typical of the cryptocurrency, as investors anticipate the subsequent so-called “halving” event — a change to the bitcoin network that reduces rewards to miners by half. It’s viewed by some investors as positive for the value of the token, because it squeezes supply.
The subsequent halving is slated to happen sometime between March and May of 2024.