Bitcoin’s 2023 rally gains steam as cryptocurrency briefly surpasses $23,000


Bitcoin had a tough 2022. Now investors are cautiously looking at 2023 when it comes to cryptocurrencies.

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Bitcoin continued its climb Monday as traders took news of another crypto bankruptcy coming their way and placed bets on a Federal Reserve “pivot” to cut interest rates.

According to Coin Metrics, the price of the No. 1 token briefly touched $23,100 on Monday after hitting $23,333.83 on Saturday for the first time since August 19. The jump takes bitcoin up nearly 39% since early January.

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Ether, the second-largest digital coin, rose to $1,664.78 on Saturday. That’s the first time it has crossed $1,600 since Nov. 7, 2022. It last traded at $1,637.40 each.

Bitcoin has started 2023 on a positive note, with investors hoping for a reversal of the monetary tightening that spooked market players last year.

The Fed and other central banks began cutting interest rates in 2022, shocking holders of risky asset classes such as stocks and digital tokens. Listed technology stocks and private venture-backed start-ups took a particular beating as investors sought protection in assets considered safer, such as cash and bonds.

A chart showing bitcoin’s price performance to date; the digital currency is up nearly 39% since the beginning of January.

With inflation in the US showing signs of cooling, some market players are hoping that central banks will slow down or even lower the pace of interest rate hikes. Economists previously told CNBC that they predict a rate cut by the Fed could happen as early as this year.

“Fed tightening appears to be lighter and inflation less risky,” said Charles Hayter, CEO of crypto data site CryptoCompare, in comments emailed to CNBC. “There is hope that there will be more caution about interest rate hikes worldwide.”

The Fed will probably keep interest rates high for now. However, some bank officials have recently called for a reduction in quarterly rate hikes, fearing a slowdown in economic activity.

The world’s top digital currency, bitcoin, is “increasingly looking like it’s hit rock bottom,” said Vijay Ayyar, vice president of business development and international at crypto exchange Luno.

According to Ayyar, short sellers of Bitcoin have come under pressure from sudden upward price movements. Short selling is an investment strategy in which traders borrow an asset and then sell it in the hope that it will fall in value.

An eradication of those short positions caused by bitcoin’s rising price has added “fuel to the fire,” Ayyar said, as short sellers are forced to cover their bets by buying back the borrowed bitcoin to close them.

Which crypto collapse?

Investors do not appear to be much alarmed by the collapse of the top crypto companies, following the fallout from digital currency exchange FTX’s insolvency in November.

Learn more about technology and crypto from CNBC Pro

Last week, the lending arm of New York-based crypto investment firm Genesis became the latest victim of the crypto crisis, seeking bankruptcy protection in a “mega” filing listing total liabilities ranging from $1.2 billion to $11 billion.

“The Genesis debacle has been playing out for a while and is probably already priced in. FTX, on the other hand, has already had a significant impact on many investors, on market psychology, and on the prices of various toxic assets,” Mati Greenspan, founder and CEO of crypto investment advisory firm Quantum Economics, told CNBC.

“However, it should be noted that the price on bitcoin itself is quite limited as FTX did not have any on their balance sheet.”

Bitcoin is still about 67% off its all-time high, despite the recent surge.

The latest crypto plunge is different from previous cycles largely due to the role played by leverage. Major crypto players got caught up in risky lending practices, offering skyrocketing returns that many investors felt were unsustainable.

This started in May with the collapse of terraUSD – or UST – an algorithmic stablecoin that was supposed to be pegged one-to-one to the US dollar. The failure of UST brought down terraUSD’s sister token luna and hit companies with exposure to both tokens.

Three Arrows Capital, a hedge fund with bullish views on crypto, went into liquidation due to its exposure to terraUSD.

Then came the collapse of FTX, one of the world’s largest cryptocurrency exchanges, in November. It was run by Sam Bankman-Fried, a manager often in the limelight.

The fallout from FTX continues to permeate the cryptocurrency industry. Since the height of the crypto boom in November 2021, approximately $2 trillion in value has been erased from the overall crypto market, in a deep downturn known as “crypto winter”.

The collapse of FTX is shaking crypto to its foundations.  The pain may not be over yet

One analyst warned that technical indicators suggest there could be a pullback from the token’s recent rally.

Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, said that while bitcoin’s trend indicators “generally signal a strong upward trend,” the relative strength indicator, or RSI, “deviates from the price’s upward movement and toward starts to slide downwards, which is not a good sign for the current price trend.”

“Bitcoin could test its high in August and be supported at the $20,000 ~ $21,000 level, but with the divergence of its RSI and some big technical earnings this week, it could become quite volatile,” Hagesawa said in a statement. Monday note.

The recent surge in bitcoin price has nevertheless given some investors hope that the ice may be beginning to thaw.

Greenspan said the upside in bitcoin is typical of the cryptocurrency as investors anticipate the next so-called “halving” event — a change to the bitcoin network that cuts miner rewards by half. It is seen by some investors as positive for the price of the token as the supply comes under pressure.

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

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