Why is Bitcoin going up again?

Throughout 2022, the economy otherwise experienced some turbulence. But the cryptocurrency market in particular experienced a decline from its epic heights in 2021. Even the oldest surviving cryptocurrency, Bitcoin, saw its value fall from over $60,000 to below $17,000.

Investors interested in cryptocurrency couldn’t help but wonder when Bitcoin’s value would return. That time seems to have finally arrived. Bitcoin saw its price increase by 20% in March, leading many to wonder what changed. This article will explore why this reversal is happening and whether we believe it will continue.

Important takeaways

• Currently trading around $28,000, Bitcoin has recovered nearly $10,000 in value since the early 2023 bottom.
• Many factors contributed to the falling price of Bitcoin, including generally unfavorable economic conditions.
• With some of the factors that pushed the price down now reversed, the value of Bitcoin is rising. Only time will tell if the trend continues.

A brief history of Bitcoin

When Bitcoin hit the market in 2009, it was unclear what to expect from an investment perspective. However, that didn’t stop investors who understood the cryptocurrency’s potential from jumping in.

In July 2010, Bitcoin saw its first major price jump to $0.09. But the inherent volatility of cryptocurrency led to significant swings along the way. Fast forward to 2020, Bitcoin started climbing to an all-time high of $67,566 in November 2021.

Of course, this extreme rise in value had many investors excited. After all, who wouldn’t want that adding such a high yielding asset to their portfolio? Unfortunately for some investors, jumping on the Bitcoin bandwagon in 2021 would be a big mistake.

Bitcoin in 2022

Since peaking at around $68,000, Bitcoin has fallen. In mid-November 2022, the cryptocurrency’s value fell to around $16,700. That meant Bitcoin had lost over 70% of its value from a year before.

Bitcoin prices looked bleak in 2022 compared to last year’s highs. But compared to 2019 prices, the asset had still increased in value even at the end-2022 low.

What Pushed Bitcoin Down?

Although Bitcoin’s value experienced such a dramatic drop in 2022, many experienced crypto investors were accustomed to the extreme volatility of this asset class. And the reality is that Bitcoin wasn’t the only asset that saw shocking volatility amid 2022’s market conditions.

If you’re not one to follow the general economy, 2022 was a wild ride. Many factors that hurt stock investors and everyday households also contributed to the volatility of the crypto market.

One of the major problems facing the economy was high levels of inflation. Inflation is usually caused by a mismatch between supply and demand. Companies will raise prices if demand for goods is unusually high or something disrupts supply chains. When a rise in prices is widespread throughout the economy, the Federal Reserve steps in.

The Federal Reserve approved a series of aggressive rate hikes through 2022 to curb inflation. Higher interest rates make it more expensive to borrow and reduce consumers’ discretionary spending. People save more and often sell off investments in anticipation of poor company performance.

Cryptocurrency suffered a lot of bad press in 2022 due to the fallout of FTX. The collapse of the crypto exchange led to a loss of over $1 billion in consumer funds. Whenever a failure like this happens, crypto markets tend to suffer as investors become increasingly skeptical of the asset’s stability.

The war between Ukraine and Russia also strained the global political world in 2022. In addition, the midterm elections unsettled the American political landscape. These factors contributed to the financial turmoil we saw, which likely caused the negative drop in Bitcoin’s price.

But historically, there has been an underlying debate about the intrinsic value of Bitcoin. Some investors are wary of using Bitcoin as a long-term store of value, while others are more confident that another coin, such as Ethereum, may surpass Bitcoin’s utility value at some point.

The value of Bitcoin

Bitcoin is a digital currency that represents an alternative to “normal” fiat currency. A central bank controls fiat money, and it has value because the government decides it has value. Consumers use it widely, and its value is not tied to a specific commodity, like the gold standard.

Despite being in a digital space, it is important to remember that Bitcoins are limited in supply and have associated production costs. Some people compare Bitcoins to precious metals because of their limited economic use. For example, you cannot use Bitcoin or physical gold to pay in most stores.

On the other hand, Bitcoin has certain advantages over other currencies. Bitcoin is more mobile than paper money or precious metals because it is not physical. Bitcoin’s underlying technology is decentralized and validated by various independent nodes. This makes Bitcoin particularly resistant to fraudulent measures such as counterfeiting.

All the way to people use Bitcoin in more commercial activities, most consumers are likely to be skeptical about value for money. If you are interested in the debate surrounding Bitcoin’s value, you may be interested in reading more about theories of currency and the transition from gold standard to fiat currency.

Investors look forward to 2023

As with all stocks, we can’t be 100% sure why Bitcoin’s value goes up or down, but there are better and worse theories. In 2022, investors thought of several ways Bitcoin stock could experience a decline. Some of these opportunities included:

• Lower interest rates: If interest rates began to fall, investors believed that would encourage Bitcoin’s price to rise. That is because investors would be more willing to invest in riskier assets.

• Reduced threat of recession: The danger of an economic downturn was high on everyone’s mind in 2022. With financial uncertainty baked into every investor decision, choosing a risky asset like Bitcoin probably didn’t seem possible.

• Changes in the federal regulation: In 2022, the federal government became more interested in regulating the crypto market. Reports were submitted to the president suggesting ways to take advantage of the new technology’s benefits while minimizing the risks. Action taken by the federal government could have affected the coin’s price.

• Wider acceptance of crypto: Even in 2023, many potential users are wary of the value of crypto. As more people begin to accept crypto as a way to store and transfer value, Bitcoin’s value will continue to rise.

Some major players in the banking industry predicted a Bitcoin rebound. Earlier in 2022, Deutsche Bank analysts predicted that Bitcoin would return to a value of $28,000 by the end of the year. The same bank also predicted that Bitcoin could become the digital gold of the 21st century.

Why did Bitcoin’s value go up again?

Now that the recovery is finally happening, most analysts’ explanations are linked to easing macroeconomic conditions. Although the Fed has not started to cut interest rates, they have slowed down. Most experts expect only one more rate hike in 2023. This is positive news for the stock market in general, but especially for riskier assets like Bitcoin, which seem like more unnecessary expenses when inflation is high and borrowing is expensive.

The banks have also recently experienced large losses on various bond holdings. This has contributed to the Federal Reserve being more moderate with interest rate increases recently.

Centralized banking has also recently faced some skepticism with the collapse of Silicon Valley Bank. SVB’s failure was due, among other things, to the bank’s investments losing value, which led to depositors withdrawing significant amounts of their money. In the aftermath, some publications argued that cryptocurrency and blockchain technology are better suited to run a financial system, which could have contributed to Bitcoin’s price rise.

On the other hand, many considered SVB to be the backbone of the tech startup world, so the failure led some experts to predict that investors would move away from crypto assets. Silvergate Capital and Signature Bank, two of the biggest lenders in the crypto space, also recently announced closures. This made the rise in Bitcoin’s price somewhat surprising. It suggested that recent events did not shake investor confidence so dramatically.

Bitcoin’s rise has outpaced growth in the tech-heavy Nasdaq, which is only up about 18.5% this quarter. Ethereum and Solana have also seen significant growth so far this year. Where these cryptos will go in the coming months remains to be seen, but with inflation slowly cooling and interest rates potentially falling later this year, experts are hopeful.

Investment in crypto

As a speculative and volatile asset, investors should prepare to lose money they put into cryptocurrency. We have seen many crypto crashes in recent years and investors should not take any investment – ​​especially with crypto – as a guaranteed success.

But if you are ready to take some risk, you can earn passive income with your crypto tokens through functions such as crypto staking, crypto lending and crypto royalties.

The bottom line

Bitcoin may be the most well-known cryptocurrency, but it is still subject to the extensive volatility that investors have come to associate with the crypto markets. The economy suffered in 2022, and it hit cryptocurrencies particularly hard. Bitcoin lost significant value from its high in late 2021, reaching a trough near the end of 2022. It has since rebounded, likely due to easing macroeconomic conditions and recent problems in the centralized banking world.

If you’re an investor building a portfolio of individual cryptocurrencies, keep an eye on current events. Don’t take any investment as a guaranteed success, and learn about ways to invest smartly and defensively in these cutting edge new assets.

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