Bitcoin is off to a great start to the year. Within days, the price of cryptocurrency rose above the symbolic threshold of $20,000, stimulating the entire digital asset industry. We take stock of the causes and consequences of the increase.
Last year, the price of Bitcoin gradually collapsed. After the successive disappearance of several pillars of the ecosystem, i.a The FTX platform and UST of Terra Labs, the queen of cryptocurrencies ended the year under $20,000, far from its all-time record by the end of 2021, at the gate of $70,000. For the first time since late 2020, Bitcoin traded around $17,000 for long weeks.
Bitcoin’s big comeback?
After a dark year, Bitcoin started 2023 with a bang. Digital currency has experienced a meteoric rise of 30% since 11 January. After weeks of struggling between $16 and $17,000, the cryptocurrency surged upward over the weekend. Within days, Bitcoin once again crossed $20,000, its all-time high at the end of 2017.
Currently, BTC is trading around $21,000. It is the first time since the summer of 2021 that the Bitcoin price has accumulated so many days in the green. Most cryptocurrencies are experiencing a similar rise. For example, Ether rose 20% in a few days and took the price just above $1500. The currency is still far from its all-time high of $4,500, which dates back to 2021. Note the meteoric rise of Solana (SOL), which is benefiting from launch of the Bonk cryptocurrency to retrieve colors.
Fueled by Bitcoin, the cryptocurrency industry has bounced back $1 trillion. The total capitalization of the ecosystem now revolves around this threshold. As of this writing, the market valuation is estimated at $995 million by CoinMarketCap.
Not surprisingly, this unexpected rebound brings smiles for bitcoin miners. The crash had deeply hurt the profitability of mining, pushing some players to their limits. Some industry flagship companies listed on the stock exchange suffered significantly from the market downturn. Back to the wall, the giant Core Scientific has also declared bankruptcy.
Thanks to the increase, the miners were able to rebalance their activities, reveals the latest Glassnode report. The blockchain research firm estimates that the average cost of producing a Bitcoin is around $17,962, leaving a nice margin for miners. If the price goes back below 17,000 dollars, the industry may encounter difficulties again, warns Glassnode nonetheless.
Bitcoin mimics the economy
Despite its ambitions as a safe haven, Bitcoin is currently very much correlated with traditional financing. When the stock market indexes rise again, cryptocurrency generally experiences an upswing. This is exactly what is happening at the moment. The price is simply responding to the increase in certain reassuring indicators for investors and traders.
After a gloomy 2022, the global economy is showing really encouraging signs. The actions taken by the US Federal Reserve seem to have dampened inflation. According to figures from the US Labor Department, inflation fell to 6.5% in December from 7.1% in November. In June, inflation reached 9.5%, breaking a sad forty-year-old record.
“A mix of news, including slowing US inflation, kept markets happy, but the revival of crypto assets was much more energetic than other asset classes.”explains Simon Peters, analyst at eToro.
in parallel, stock index shows green. Last Friday, the three major indexes on the New York Stock Exchange ended the week with a monthly record. More generally, the world economy appears to have escaped the recession that has been looming for a year, at least in the short term. In this context, analysts expect a stabilization phase, which will affect the riskiest assets, including cryptocurrencies.
“Short traders have become cautious, which may lead to prices stabilizing in the short term”Explain a report from Arcane Researchand rejects the prospect of an imminent correction.
in parallel, bitcoin mining difficulties broke a new record last weekend. As is the case every other week, the difficulty has adjusted to the available computing power on the network. This increase indicates that there is great competition between miners, which secures blockchain transactions. As Simon Peters explains, it is a “long-term positive indicator »:
” It’s about […] a common signal during or after bearish episodes when bottom use and development continues despite falling prices”.
Forecasts for the end of 2023
In this context, some analysts do not hesitate to prophesy the big return of the bull run, a strong bull phase in stock market jargon. For Bloomberg analysts, King Bitcoin could very well have a good year, particularly benefiting from an economy that will continue to be marked by geopolitical tensions. asked by CNBCbillionaire Tim Draper expects Bitcoin to reach $250,000 by the end of the year.
Other observers want to be more cautious. They estimate that the market will not break new records before horizon 2024despite the recent recovery. Until next year, Bitcoin may still fall lower. For the Standard Chartered bank, it is possible that the currency will collapse around $5,000 by pointing the finger the fragility of ecosystem players :
“More and more companies and cryptocurrency exchanges have insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence”.