Bitcoin, Since the beginning of January, the price of the most major digital token in the world has increased by almost 26%, signaling a promising start to the year 2023.
First time since November 7 that the price of a single bitcoin was more than $21,000, and it happened on Saturday.
It is still very far from the record high of $68,990 that bitcoin reached in November of 2021. However, it has provided participants in the market with a reason for cautious optimism.
The month-to-date rally comes after a rough year in the crypto industry in 2022, which was marked by significant bankruptcies and scandals, like the fall of FTX, and a sharp pullback in the market due to actions taken by central banks. In 2022, the cryptocurrency industry saw significant insolvencies and scandals.
The price of bitcoin has been on the rise since the start of the new year, and analysts believe that various variables are to blame. These factors include an increased likelihood that interest rates would be cut, as well as purchases made by huge buyers known as “whales.”
Both the rate of inflation and economic indicators point to a slowdown in economic activity in the United States. Traders now have more reason to hope that the Federal Reserve will abandon its plan to raise interest rates or, at the very least, slow it down.
Last week, new data on U.S. inflation showed a slight drop. The consumer price index fell 0.1% month-to-month in December, which was in line with Dow Jones estimates.
“Bitcoin seems to have recoupled with macro data as investors move on from the FTX collapse,” James Butterfill, head of research at digital asset management firm CoinShares, told CNBC in an email.
“The most important macro data for investors is that the services PMI is low and that employment and wage data are going in the wrong direction.” The fact that inflation is going down has made people feel better about the future. This comes at a time when Bitcoin prices are close to their all-time lows. This rally has been driven by the possibility of looser monetary policy due to weaker macro data and low valuations.
In 2022, the Fed raised interest rates on loans seven times. This sent risky assets, like stocks and tech stocks in particular, into a tailspin. In December, the bank’s benchmark funds rate went up to 4.25–4.50 percent, which is the highest it has been since 2007.
Bitcoin is getting caught up in the market drama over interest rates on loans because investors see it more and more as a risky asset.
Backers used to talk about how bitcoin could be a “hedge” to buy when inflation is high. But in 2022, bitcoin still needs to reach that goal. Instead, it fell by more than 60% as the U.S., and other significant economies struggled with higher rates and costs of living.
Yuya Hasegawa, a crypto market analyst at the Japanese crypto exchange Bitbank, said in a note on January 13 that this “gave market participants hope that the Fed will slow down even more on rate hikes.”
For now, the Fed is likely to keep interest rates high. But some people in the market are hoping that central banks also slow the pace of rate hikes or even cut rates. Some economists think the Fed could cut interest rates as early as this year.
That’s because central bankers are also worried about the possibility of a recession.
According to research released by the group that puts on Davos on Monday, about two-thirds of the chief economists the World Economic Forum polled think a global recession is likely in 2023.
The U.S. dollar has also gone down. In the last three months, it has lost 9% of its value against a basket of currencies used by U.S. trade partners. Most bitcoin is traded for U.S. dollars, so a weaker one is better.
“We’re seeing the dollar put in a top, inflation slowing down, and interest rate hikes slowing down,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC. “All of these things point to markets getting more risk-on over the next few months.”
Kaiko says that the latest rise in bitcoin may be led by “whales,” which are big buyers of digital coins.
In a series of tweets on Monday, a crypto data company said that the average size of trades on the crypto exchange Binance had gone up from $700 on Jan. 8 to $1,100 today. This shows that whales have more faith in the market.
Whales are investors who have kept a lot of bitcoin for themselves. Some are people like Michael Saylor, the CEO of MicroStrategy, and Tim Draper, an investor in Silicon Valley. Others are things like market makers, who act as middlemen between buyers and sellers when they trade.
Some people who don’t like digital currencies say that this makes it easy for a small group of investors with a lot of tokens to control the market. River Financial, a fintech company, says that 14.15 percent of all bitcoins are in the 97 wallets of the wealthiest people.
In December, Carol Alexander, a professor at the University of Sussex, told CNBC that bitcoin could have a “managed bull market” in 2023, in which the price goes above $30,000 in the first quarter and up to $50,000 in the second half. She thought that when the number of trades dropped and the level of fear in the market was very high, whales would step in to keep the market going.
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