- Bitcoin is up 50% this year despite the collapse of major crypto-focused banks, beating major stock indices and commodities.
- On January 1, bitcoin started trading at just over $16,500. On Wednesday, it hovered around $25,000, thanks to a rally that started on Sunday.
- The recent increase came as somewhat of a surprise given the closure of Silvergate Capital and Signature Bank, two of the crypto industry’s largest lenders.
- Industry insiders said the anticipation of a slower pace of rate hikes by the US Federal Reserve is helping bitcoin.
Bitcoin is up 50% so far in 2023, beating major commodity and stock indices. Industry insiders said the bank’s collapse has sent investors looking for alternatives to the traditional banking system and a slowdown in rate hikes is also anticipated, helping bitcoin.
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Bitcoin is up 50% this year despite the collapse of major crypto-focused banks, beating major stock indices and commodities.
On January 1, bitcoin started trading at just over $16,500. On Wednesday, it hovered around $25,000, thanks to a rally that started on Sunday.
This year’s price surge comes after bitcoin crashed 65% in 2022 following a number 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 somewhat of a surprise given the closure of Silvergate Capital and Signature Bank, two of the crypto industry’s largest lenders. And Silicon Valley Bank, seen as the backbone of the technology startup industry, also failed.
“Bitcoin’s 50% rise in 2023 is a reflection of how it was knocked down after the collapse of the FTX, changing interest rate outlook and the failure (& resurrection) of SVB,” said Antoni Trenchev, co-founder of crypto trading platform Nexo . CNBC.
From its high of nearly $69,000 in November 2021, bitcoin is still down more than 60%.
Here are some of the top reasons why bitcoin is up.
While the collapses 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 crypto exchange Luno.
“The events of the past week surrounding the bankruptcy of the SVB and other banks have also drawn attention to the power of decentralized currencies that people can fully hold and own,” Ayyar said. “Decentralized finance is now starting to become a concept for 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 the network is maintained by a community.
However, US regulators had to intervene to guarantee customers’ deposits with these banks.
Nexo’s Trenchev said the intervention “reminded investors of the structural flaws of the U.S. banking system and the U.S. dollar that underpins it, reasons why we’ve seen a flight to Bitcoin this week.”
Bitcoin proponents have argued that the digital currency is a way for investors to shield themselves from central bank moves, particularly quantitative easing and looser monetary policy, which they say erodes the value of fiat currency. Proponents point to bitcoin’s finite supply as a key feature of it being a store of value.
The bank deposits came after a year of rate hikes by the US Federal Reserve. The SVB’s problem was that it had to sell assets, mainly government bonds, to strengthen its balance sheet as depositors began to withdraw money. But it sold those assets at a hefty loss because interest rate hikes had pushed government bond prices down.
Some analysts have suggested that pressure on the financial sector could slow the pace of rate hikes by the Fed, which could help risky assets, such as stocks and bitcoin. That came even after Fed Chairman Jerome Powell said days before the bank collapsed that interest rates are likely to be higher than policymakers expected.
“In the space of a few days, we had moved from an aggressive Powell to an environment where economists predicted that the Fed would not even raise rates in March, which would benefit Bitcoin,” Trenchev said.
“It is said that the Fed will only stop raising rates if they break something, and now that something is broken, the focus is on Bitcoin.”
Bitcoin is up 50% this year. In contrast, the tech-heavy Nasdaq, which bitcoin has historically been closely correlated with, is up 12% year-to-date. The S&P 500 is up 2.5%.
Gold, seen as an asset that investors flock to during times of market turmoil, is up just over 3% this year.
There are not many commodities or stock indices that have beaten bitcoin. In terms of individual stocks, Meta is up about 60% so far this year.
Among the major digital currencies, ether is up 42% this year, while solana is up more than 100%.