Published: March 22nd, 2023
BTC pushed past USD 28,000 on Sunday, 19th March and was sitting at USD 28,345 at time of writing. The latest price action puts the leading cryptocurrency up more than 28 per cent over the last seven days, in an ongoing rally that’s lifted its price by 70 per cent since the start of the year.
The last time BTC changed hands at similar levels happened in June of 2022, following the collapse of Terra and the resulting contagion that came after.
Today it’s a different story, with Bitcoin benefitting from a sprawling crisis in the traditional banking sector that started last week with the collapse of America’s Silicon Valley Bank (SVB). This week it’s Europe's turn, with 'systemically important’ global lender Credit Suisse sold to competitor UBS for pennies on the dollar.
BTC bulls have been taking a victory lap, and there may be more gains to come.
‘The macro environment for Bitcoin is about as perfect as it could be,’ tweeted Klever Finance COO Michael Kledermann. Meanwhile the idea that ‘Bitcoin was made for this’ continues to echo across social media.
Beyond the chatter, however, the picture may be more complex than the rise of a new financial paradigm. Bloomberg’s crypto unit pointed out in a market analysis this week that Bitcoin and other cryptocurrencies have become entwined with central bank monetary regimes, especially the US Fed.
As is so often the case with fiat currencies, prospects for BTC gains and losses boil down to rate hikes and their impact on wider risk sentiment.
As rates go up to keep inflation in check, borrowing money becomes more expensive. Investors re-balance their portfolios away from riskier assets like cryptocurrencies for safer bets like US government bonds, which typically see their yields head upward when the Fed tightens the USD money supply.
This dynamic can have unintended consequences when rising rates also pressurize banks. One of the reasons cited for SVB’s collapse is the fact it had shifted into bonds with variable terms for maturity. When clients started withdrawing money to extend their cash reserves, SVB had to sell its bonds before they matured and eat the losses.
That led to the bank’s closure last week. As politicians and investors point the finger at the Fed for instigating the crisis, the speculation now is that US central bankers will hit the pause button on further rate hikes.
Bloomberg says that so much uncertainty in the traditional financial system has created an environment where Bitcoin can continue to thrive.
After crypto’s extended winter of 2022, Bitcoin traders are finding themselves back in the black.
In a report published in January, Blockchain analytics firm Glassnode said Bitcoin's realized price, or the average price investors are currently paying for BTC, had been sitting at an average of USD $18,000 for 30 days. That put crypto’s top coin back in profit territory, with prices moving above USD 21,000 on 16th March then continuing an upward climb.
BTC rallied north of the psychologically important USD 20,000 level on Saturday 14th January. It was the first time since the implosion of troubled crypto exchange FTX it had been above 20k, a level that also makes it profitable for mining firms to switch their expensive ASIC machines back on and start validating transactions again on the Bitcoin network. The 20k level is also the price that the average Bitcoin hodler could make a profit if they liquidated their BTC holdings.
Glassnode said that the economics of mining BTC have shifted back in miners’ their favour. Mining BTC requires robust computational power to solve complex math equations and create more Bitcoin. Mining one new Bitcoin currently costs about USD 18,700. When Bitcoin trades above that level, it means there is an opportunity to turn a profit.
BTC's price began its 2023 ascent on news that US inflation had begun to cool off. The Federal Reserve raised its benchmark rate again and again in 2022 to keep record-high inflation at bay. The extended effect brought down the price of risk assets, impacting both traditional equities and BTC.
The Fed raised interest rates in December 2022, adding another 50 basis points. This was seen as a more cautious rise compared to previous 75 basis-point hikes. The US Bureau of Labor and Statistics also published a Consumer Price Index report in December which showed that inflation had dropped back to 6.4 pe cent, down from 7 per cent seen in November.
This looks to have spurred investor confidence, with hopes that the Fed is now on track to soften what has been a ‘hawkish’ policy direction on rates.
Since the crypto market doldrums set in last year, there have been a few short-lived price gains. In October 2022, blockchain analytics firm Kaiko released figures showing that BTC's 20-day volatility had tracked the NASDAQ for the first time in nearly 24 months.
It was an unexpected swapping of roles, where Bitcoin’s price stayed more or less the same since the beginning of September. The normally stable NASDAQ and the S&P 500 dropped by 11 per cent and 10 per cent respectively in the same period.
Bitcoin’s price has historically been correlated with technology stocks, though with a higher propensity for volatility than other financial assets. Despite the impressive gains posted in 2021, its high beta rating has kept many investors from relying on it as safe-haven asset. Despite a price plunge in June, BTC and other major cryptos have been some of the best-performing assets in Q3, after the mighty Greenback.
Bitcoin’s price did drop back to lows last seen in 2020 during the week commencing 10th October, after core US inflation topped another 40-year high. Both BTC and equities fell on the news, before quickly bouncing back to their previous ranges.