Bitcoin Leads For Best Quarter In Two Years, Outpaces Ether, Gold, Nasdaq
Bitcoin (BTC) has started 2023 with a bang, marking a positive turnaround from a year-long swoon.
The leading cryptocurrency by market capitalization has added nearly 72% to $28,500 this year, its best quarterly gain in two years, CoinDesk data shows. The price rise has lifted the cryptocurrency’s market value to $542 billion.
Just three months ago, some experts were mulling the possibility of bitcoin falling as low as $12,000 this quarter, after its valuation had fallen 76% since November 2021.
The rebound has put bitcoin ahead of ether, the second-largest cryptocurrency by market capitalization, which looks set for a 50% quarterly gain. Gold has risen by more than 7%, while Wall Street’s technology-heavy Nasdaq index has risen 15%.
Much of the rally has been fueled by speculation that central banks, led by the Federal Reserve (Fed), will abandon their aggressive rate hikes in response to recessionary signals.
The so-called Fed pivot expectations strengthened early this month after three US banks collapsed and the central bank launched emergency funding programs to stop panic in the banking sector. The central bank’s balance sheet recently expanded by $300 billion, reversing months of quantitative tightening. According to Fed Funds futures, traders now see the Fed beginning an easing cycle in June with a 25 basis point rate cut.
“It’s about expectations of new easing from central banks, especially the Fed,” Martin Leinweber, digital asset product strategist at MarketVector Indexes, told CoinDesk TV. “Among all risk assets, bitcoin stands out as the most sensitive to liquidity fluctuations.”
David Foley, managing partner of the Bitcoin Opportunity Fund, said assets with good cash appeal, such as bitcoin and gold, benefit from the liquidity boosts.
“When the Fed suddenly turns on a dime, and has to throw some QE back into the system to protect the banking system, money flows into sound money: gold, silver. And bitcoin, which is sound money, is going to be the fastest in the race,” said Foley on CoinDesk TV, referring to quantitative easing.
Some observers say bitcoin’s worsening order book depth has played a larger role in the price rise.
Order book depth refers to how easy or difficult it is to get in and out of large traders at stable prices. The depth has been steadily decreasing since the collapse of FTX and hit a 10-month low early this month. In other words, a small buy order now has a larger bullish impact on prices.
“In this case, the narrative of bitcoin as a hedge against financial disaster gave BTC the push it needed. But there was little upside resistance to overcome,” wrote Connor Ryder, an analyst at Paris-based crypto data provider Kaiko, in a recently published analysis.
