Bitcoin (BTC) price is up 50% this year, outperforming stocks and gold

Bitcoin is up 50% this year despite the collapse of major crypto-focused banks, beating major stock indexes and commodities.

On January 1, bitcoin began trading at just over $16,500. On Wednesday, it hovered around $25,000, thanks to a rally that started on Sunday.

The price surge this year comes after bitcoin crashed 65% in 2022 following a series of major project and hedge fund collapses, bankruptcies, liquidity problems and the failure of FTX, one of the world’s largest cryptocurrency exchanges.

The recent rally has come as something of a surprise, given the closure of Silvergate Capital and Signature Bank, two of the biggest lenders to the crypto industry. And Silicon Valley Bank, seen as the backbone of the tech startup industry, also failed.

“Bitcoin’s 50% rise in 2023 is a reflection of how beaten down it was after the FTX collapse, the changing interest rate outlook and the failure (and resurrection) of SVB,” said Antoni Trenchev, co-founder of crypto trading platform Nexo. CNBC.

From its peak of nearly $69,000 in November 2021, bitcoin is still down more than 60%.

Here are some of the main reasons why bitcoin is up.

While the collapse of Silvergate, Signature Bank and SVB sent shockwaves through financial markets, bitcoin’s rise may also be fueled by those failures, according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.

“This past week’s events surrounding the failure of SVB and other banks have also put the spotlight on the power of decentralized currencies that people can have full custody and ownership of,” Ayyar said. “Decentralized finance is starting to catch on as a concept to a lot more people now.”

Bitcoin is called a decentralized currency because it is not issued by a single entity such as a central bank. Instead, it relies on an underlying technology called blockchain, and the network is maintained by a community.

However, American regulators had to step in to guarantee customer deposits with these banks.

Nexos Trenchev said the intervention “reminded investors of the structural flaws of the US banking system and the US dollar that underpins it, reasons why we have seen a flight to Bitcoin this week.”

Bitcoin supporters have argued that the digital currency is a way for investors to protect themselves against central bank moves, particularly quantitative easing and looser monetary policy, which they say erode the value of fiat currency. Proponents point to bitcoin’s limited supply as a key feature of it being a store of value.

The bank collapses came after a year of interest rate hikes by the US central bank. SVB’s problem was that it had to sell off assets, mainly Treasurys, to shore up its balance sheet as depositors withdrew funds. But it sold those assets at a big loss because interest rate hikes had pushed the price of Treasurys lower.

Some analysts have suggested that the stress on the financial sector could slow the pace of rate hikes by the Fed, which could help risk assets such as stocks and bitcoin. It came even after Federal Reserve Chairman Jerome Powell said days before the bank collapsed that interest rates were likely to be higher than policymakers expected.

“Within a few days, we had turned from a hawkish Powell to an environment where economists were predicting that the Fed might not even raise interest rates in March, which benefited Bitcoin,” Trenchev said.

“It has been said that the Fed will only stop raising interest rates when they break something, and now that something is broken, attention has turned to Bitcoin.”

Bitcoin has risen 50% this year. In contrast, the technology-heavy Nasdaq, with which bitcoin has been closely correlated in the past, is up 12% so far this year. The S&P 500 is up 2.5 percent.

Gold, seen as an asset that investors flock to in times of market turmoil, is up just over 3% this year.

There aren’t many commodities or stock indices that have beaten bitcoin. In terms of individual stocks, Meta is up around 60% so far this year.

Among the major digital currencies, ether has risen 42% this year, while solana is up more than 100%.