Bitcoin up 22% in 7 days with slowing inflation, Fed optimism

Bitcoin has seen its price rise more than 22% in the past seven days with the pace of inflation slowing in the US and optimism about the Federal Reserve’s rate hikes.

The price of the world’s largest cryptocurrency by market value was hovering above $21,000 on Tuesday — its highest in more than two months.

That level was last seen Nov. 7 when tensions between Binance CEO Changpeng Zhao and former FTX CEO Sam Bankman-Fried’s heated exchange on social media left crypto investors in the dark. Investors’ trust in the digital asset market was also shaken when FTX’s buyout offer was declined by Binance.

When FTX, then the world’s third-largest crypto exchange platform, filed for bankruptcy after the spar, Bitcoin saw its price rapidly tumble below $16,000 on Nov. 21. The total value of the crypto market plummeted to $780 billion the next day.

While Bankman-Fried faces eight charges, including directing an $8 billion fraud, amid the sudden collapse of the company that was once valued at $32 billion, he denied stealing funds from users of the crypto exchange platform.

2022 was engraved as a “crypto winter” for the digital assets market with several crises, from bankruptcies and lack of accountability.

Three Arrows Capital, Voyager, Genesis, Celsius and BlockFi were some major crypto companies that added fuel to the fire.

As the price of Bitcoin, which makes up 40% of the market, lost 64% of its value in 2022, the total market size of cryptocurrencies fell from $2.25 trillion and saw more than $1.4 trillion evaporate.

Apart from the internal turmoil of the crypto market, major central banks’ aggressive monetary tightening cycle to fight record inflation also exacerbated market turmoil by lowering the amount of liquidity, especially for risky assets such as cryptocurrencies.

2023 begins with optimism

The pace of inflation, however, has been slowing around the world, especially in the US, which has created optimism for crypto enthusiasts.

US annual consumer inflation came in at 6.5% in December, easing from 7.1% in November. The figure has been the smallest 12-month increase from the period ending October 2021.

It is also a sharp decline from the 9.1% annual gain in June, which had been the largest 12-month rise since November 1981.

The slowdown in inflation clearly shows that the Fed’s aggressive monetary tightening has been working, which carried the bank’s target range for the federal funds rate to between 4.25% and 4.5% — its highest in 15 years.

After the US central bank increased its benchmark interest rate by 75 basis points June 15, the steepest rate hike in 28 years, it followed that by three more increases of 75 basis points and concluded 2022 with a hike of 50 basis points in December.

With the pace of inflation slowing, the Fed is widely expected to hike rates 50 basis points after its first 2023 meeting on Feb. 1.

Bitcoin up 29% since start of new year

The Fed starting to take its foot off the throttle has provided optimism for investors opting for riskier assets, especially for crypto enthusiasts.

Bitcoin has been up a massive 38% since it dipped Nov. 21 and it gained 29% since the beginning of 2023, according to data compiled by Anadolu.

Ethereum, the world’s biggest altcoin by market cap, is up 33% year-to-date at $1,593 on Tuesday and has recovered a whopping 48% since dipping at $1,079 on Nov. 21.

The total value of the crypto market is almost $1 trillion — a gain of $220 billion, or 28%, since November.

What awaits Bitcoin in 2023?

Although the figures are positive for Bitcoin and cryptos, recent gains are dwarfed by the massive daily and weekly jaw-dropping rallies in previous years, and recent prices are far from their peak levels.

Bitcoin and the crypto market are still way off their record highs of $69,000 and almost $3 trillion market cap recorded in November 2021.

While the market needs more liquidity through returning old users and the introduction of new customers, it needs regulation more than ever to regain the trust of investors.

US President Joe Biden signed an executive order in March 2021 to ensure the responsible development of digital assets, addressing risks and benefits.

Various US agencies, in the ensuing six months, developed policy recommendations that focused on key priorities, such as investor protection, financial stability, countering illicit finance, financial inclusion and responsible innovations.

Although regulations have been frowned upon by crypto enthusiasts who favor decentralization, 2022 showed how hundreds of billions of dollars could easily evaporate in a deregulated market that is still taking baby steps.

2023 could be another “crypto market” if new regulations are not adopted and enforced, and the most recent Bitcoin rally could be short-lived.

Source: Anadolu Agency