In the first month of 2023 the price of bitcoins it is experiencing a recovery period that very few assets could experience. From a price of around $16,500 per token at the end of 2022, it is trading at $22,624 as of this writing, with a revaluation of $6,124 or 37.12 percent.
When the most conservative analysts considered digital assets dead for a loss of confidence after the collapses of large companies, mainly the one from FTX from Sam Bankman-Fried, the price of bitcoin has rebounded. And although in its market the advances are usually attributed to mere speculation, there are clear reasons for this impulse.
To begin with, it should be mentioned that the main pressure factor for the price in 2022 was the interest rate increases by the Federal Reserve to combat inflation. The movements impacted the price of bitcoin due to the correlation it had with the Nasdaq index in a period of risk aversion.
From the last day of 2022 to its most recent close, the Wall Street Technology Index gained 3.72%. The correlation of shares with the price of bitcoin has fallen to lows of more than a year and traders are once again measuring cryptocurrencies by their own virtues (and vices).
“The good news for bitcoin is that US inflation is softening, hinting that the Federal Reserve (Fed) may slow the pace of its rate hikes. The high yields of the US Treasury bonds made crypto-financing projects less attractive”, explains a note from the financial operator ATFX.
A light after several bankruptcies
This factor is not entirely the momentum that has guided bitcoin in 2023, ATFX clarifies. Although the price of the main cryptocurrency tends to react more strongly to news than the price of stocks, the difference between the two movements is very wide, suggesting more reasons for the price increase.
“The latest hearing on the bankruptcy of FTX also brought good news, because the company’s auditors announced that they found funds for 11,000 million dollars, more than the estimate of 5,000 million in December, giving hope of payment to creditors and avoiding new bankruptcies,” ATFX said.
New institutional purchases
At the beginning of the year it was learned that Morgan Stanley, one of the largest investment banks in the United States, with assets under management of 6.5 trillion dollars, informed the market that it had bought bitcoin in its Europe Opportunity Fund through Grayscale Bitcoin Trust for 3.6 millions of dollars.
On January 6, when that news broke, bitcoin sold for more than $17,000 for the first time since mid-December. On other occasions, the interest of institutional investors in cryptocurrencies had caused enthusiasts of these assets to resume purchases.
On January 10, it was learned that BlackRock, the world’s largest investment manager, with assets under management of more than 15 trillion dollars, reported that it would give exposure to the most important cryptocurrency through the Global Allocation Fund, its largest vehicle, causing a stir. among specialized media.
technical factors
Due to the 2022 interest rate hikes and industry crashes, trading volumes in the crypto market plummeted. This means that the movement was more volatile, driving away those who were not willing to face those levels of risk despite the lower prices.
But in the most recent days, especially from January 12, the volume traded began to grow, coinciding with the break of the $18,000 level. Analysts believe this is related to closing short positions when the main cryptocurrency showed some stability.
“The appreciation of bitcoin is a collateral of the weakening of the dollar due to the reduction of risk factors, the moderation of inflation and the rate hikes. When the dollar weakens, it takes more to buy bitcoin and the price adjusts,” explained Octavio Pacheco, a cryptocurrency trader.
“When the economic indicators favored the stabilization of prices, short positions were closed at key levels. While volume was lower, volatility grew, causing massive outflows aggravated by bankruptcies and crashes. But the outlook is propitious again”, added this operator.
Cryptolovers can’t claim victory yet
In the most recent sessions, the US stock market has suffered from fears of a recession in the United States. At the same time, several members of the Federal Reserve have warned that the fight against inflation cannot yet be considered over and that rates should rise even more.
For Pacheco, the biggest risk from bitcoin’s recent rise is that the world’s largest economy slips into recession while the Fed remains tight to cool the economy. “This scenario is possible and constitutes the main pressure factor for risk,” he added.
“Bitcoin looks to build on its rally and finds support at the $20,000 level, the 2017 high. It was vital to get past it, but will it hold? If it succeeds, trading the long bias to $25,250 is possible. The $29,000 level would be another strong resistance,” ATFX analysts added in their report.
