This year’s markets are volatile, there is a great deal of uncertainty, and recently, the US government had to intervene to save two sizable US institutions. Why then is the price of bitcoin, one of the riskiest investments of them all, increasing so quickly?
All cryptocurrencies seemed to be on the verge of collapse only a few months ago, with price of bitcoin falling from almost $50,000 at the beginning of 2022 to less than $17,000 by the time 2023 came around.
Bitcoin has since soared more than 60% and it climbed another 8% Friday above $27,000, all in an era of mass layoffs in the tech sector and widespread anxiety about stability in the U.S. banking sector.
what happened?
The pandemic was a period of massive growth for both technology businesses and crypto. As more people started to travel, eat out, or see a performance, that surge started to decline in late 2021. They used screens much less, and at the same time, the government stimulus checks that provided individuals with a little extra money started to expire. Crypto started to decline as technology did. Additionally, the U.S. Federal Reserve launched its most potent campaign of rate increases in March 2022 to combat inflation, which had already started to rise quickly.
That caused the price of bitcoin to crash. Higher interest rates make safe investments like Treasurys more appealing to investors because of their higher yields, which lessens the appeal of high-growth businesses and other riskier investments. Among them is cryptocurrency.
However, economic statistics earlier this year seemed to indicate that inflation had peaked, increasing the likelihood that the Fed would scale back on rate increases. As a result, the bounce in bitcoin prices began.
How did the most recent financial failures affect everything?
The collapse of Silicon Valley Bank and Signature Bank actually fueled investments in bitcoin. In the eyes of Wall Street, a shaky financial system lowered the odds even further that the Fed could continue raising rates, as had been the prevailing expectation as recently as the start of last week, before Silicon Valley Bank blew up.
In a study report, Oanda’s Edward Moya stated that the cryptoverse might be more appealing than stocks as the economy approaches a recession. “It seems that the S&P 500 is more vulnerable to downside risks than Bitcoin is.”
A $100 investment in bitcoin on January 1 would have yielded $60, compared to a $100 investment in an S&P 500 index fund returning only $2.
