Why Bitcoin Is Rallying This Month

Bitcoin The year 2023 has started on a positive note with the price for the largest digital token in the world up 28% from the beginning of January.

Bitcoin’s price climbed above $21,000 per coin on Saturday for the first time since Nov. 7.

But it’s still a long way from the $68,990 record bitcoin high set in Nov. 2021. However, it gives market players reason for optimism.

Following a month-to-date rally, grim 2022This saw major insolvencies and scandals In the crypto industry, this includes the collapse of FTX, and a sharp pullback of the broader market related to central bank actions.

Analysts believe that bitcoin’s rise in the New Year is due to a variety of factors, including a higher probability of interest rates being lower and large buyer purchases. “whales.”

Inflation is falling and economic indicators point to a slowing of U.S. economic activity. Traders are optimistic that the Federal Reserve will reverse or soften its rate-hiking strategy.

The freshest news from last week U.S. inflation data The consumer price index showed a slight decline, decreasing 0.1% on a monthly basis in December. in line with Dow Jones estimates.

“Bitcoin looks to have recoupled with macro data as investors shrug off the FTX collapse,” CNBC spoke with James Butterfill, head research at digital asset management company CoinShares via email.

“The most important macro data investors are focussing on is the weak services PMI and the trending down of employment and wage data. This coupled with downwards trend in inflation has led to improving confidence, while it comes at a time when valuations for Bitcoin … are close to all time lows. The prospect of looser monetary policy off the back of weaker macro data and low valuations is what has led this rally.”

The Fed lifted borrowing rates seven times in 2022, forcing risky assets such as stocks — and tech stocks, in particular — into a tailspin. The benchmark funds rate at the bank increased to between 4.25% and 4.50% in December. This was its highest level since 2007.

Bitcoin is being seen as a risky asset by investors due to the market drama surrounding lending rates.

Backers had previously spoken up bitcoin’s potential to be a currency. “hedge” To buy during high inflation. Bitcoin failed to reach that goal in 2022. Instead, it plummeted more than 60% due to higher living and rate costs in the U.S.

Yuya Hasegawa is a crypto market analyst at Bitbank in Japan. She stated that the following was true in a Jan. 13, 2013 note. “brewing a hope amongst market participants that the Fed will further slow down on the pace of rate hikes.”

The Fed is likely to keep interest rates high for the time being. Some market players believe that central banks may ease the rate of interest rises or even cut rates. Economists predict that a Fed rate cut This could happen as early as next year.

Because central bankers also have to consider the risk of a possible recession.

According to research published by Davos organizer Monday, two-thirds are convinced that a global economic recession is possible in 2023 by chief economists.

The U.S. Dollar has also fallen, with the greenback falling 9% against a basket currency used by U.S. trading partners over the past three months. A majority of bitcoin trades are made against USD. Therefore, a weaker USD is better for bitcoin.

“We are seeing the dollar put in a top, inflation easing, interest rate hikes slowing down – all pointing to markets getting more risk-on over the next few months,” CNBC interviewed Vijay Ayyar as vice president, corporate development, and international at crypto-exchange Luno.

As the largest purchasers of digital currencies known, “whales” According to Kaiko, bitcoin may be leading the latest rally.

In a series of tweets Monday, the crypto data company stated that trade sizes rose from an average of $700 Jan. 8 to $1.100 today on Binance. This is a sign of renewed confidence by whales in the market.

Whales are investors who have large amounts of bitcoin. Others, such as individuals, are investors who have large amounts of bitcoin. MicroStrategy Michael Saylor, CEO, and Tim Draper (Silicon Valley investor). Others include entities like market makers that act as intermediaries between buyers or sellers.

Skeptics of digital currency claim this makes the market more susceptible to manipulation by a few investors who have large amounts of tokens. River Financial, a fintech company, claims that 14.15% of total supply is held by the 97 most wealthy bitcoin wallet addresses.

Carol Alexander, a University of Sussex Professor, visited the University of Sussex in December. told CNBC Bitcoin could be a “managed bull market” In 2023 bitcoin could reach $30,000 per quarter in the first quarter and up to $50,000 for the second half of 2023. Her reasoning was that, with the trading volume dropping and the market being extremely fearful, whales would help to prop up the market.

There are many other factors that can also play a role.

Many bitcoin miners have been forced to leave due to the fall in prices. Bitcoin miners are power-intensive machines that verify transactions and produce new tokens. They have been hit hard by rising energy costs and the slump in bitcoin prices.

According to Ayyar, this is historically a positive sign for bitcoin.

These individuals accumulate large amounts of digital currency. They are some of the most prominent sellers on the market. The selling pressure on bitcoin has been greatly reduced by miners selling their holdings to pay debts.

Bitcoin’s network has been growing in popularity over the past few years. “difficulty” This means that more computing power has been deployed to release new tokens into circulation.

Mining difficulty reached a record 37.6 trillion on Sunday, according to BTC.com data, meaning that, on average, it would take 37.6 trillion hashes, or attempts, to find a valid bitcoin block and add it to the blockchain.

“Bitcoin mining difficulty is a measure of how difficult it is to create the next block of transactions,” said Marcus Sotiriou, market analyst at digital asset broker GlobalBlock, in a note Monday.

“Bitcoin mining difficulty fell 3.6% before the last update, after a winter storm led some miners to shut down. However, now miners appear to have come back online, with new and more efficient machines.”

Events further down the crypto calendar may give traders reason for celebration in the New Year. The so-called bitcoin year is still one year away. “halving” This event is often exciting for crypto investors.

Investors see the halving as a positive sign for bitcoin’s price because it reduces supply.

“There are signs this could be the beginning of a new cycle with Bitcoin, as it typically does around 15-18 months before halving,” CNBC spoke with Ayyar. 

The next halving will take place sometime between March 2024 and May 2024.

Ayyar warned, however, that “At this point, we’re in overbought territory with Bitcoin and hence could definitely see a dip.” If bitcoin closes below $18,000 over the next few day, prices could drop.