Bitcoin Has Made A Phenomenal Comeback, But The Crypto Rally Is In Danger

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Bitcoin is off to a “phenomenal” start to the year, up nearly 50% after falling in 2022. The cryptocurrency shook off jitters caused by high-profile failures like the FTX implosion. But growing investor acceptance of further U.S. interest rate hikes is likely to dampen its recovery. LoadingSomething is being loaded.

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Bitcoin has steadily strengthened this year after a nightmarish 2022, but growing gloom over the possibility of further US interest rate hikes puts the rally in jeopardy.

The world’s largest cryptocurrency by market value has shaken the brunt of last year’s high-profile crypto bankruptcies, including Three Arrows Capital and FTX, which have shaken confidence in the sector.

“It’s been a phenomenal start to 2023 for bitcoin,” OANDA analyst Craig Erlam told Insider.

The token’s price has risen around 48% so far this year to $24,012, according to data from CoinMarketCap when last checked on Wednesday, hitting around half of its March 2022 high of $47,152. He recouped 25% of last year’s losses in just seven weeks.

It plunged 64% in 2022 on high interest rates, recession fears, as well as the fallout from fears that insolvency and other financial problems faced by companies like FTX could spread around the world. of cryptography.

Although the year-to-date rally appears to be fueled by increased investor appetite for risky assets as inflation cools, that’s not the only factor, according to Erlam.

“Bitcoin’s rebound has been particularly extraordinary, and the very thing that gave it so much trouble towards the end of 2022 could be driving the strong rebound now,” he said.

“The thing I’m referring to at the end of the year is the collapse of FTX and the prospect of contagion/exposure from other bad actors that wasn’t as bad as feared,” he said. -he adds.

The FTX implosion massively rocked the crypto markets last year, triggering a wave of bankruptcies among companies linked to the exchange. It has also sparked an industry crackdown as regulators seek to protect consumers from further financial harm.

Ultimately, crypto crashes and tighter regulations pave the way for a healthier industry, experts argued. MicroStrategy founder and bitcoin bull Michael Saylor suggested that FTX’s collapse has a positive side, as it weeds out bad actors and helps the crypto world “grow”.

This month, the Securities and Exchange Commission charged crypto firms Genesis, Gemini, and Kraken for selling unregistered securities.

Erlam suggests that such events did not surprise crypto investors or deter them from piling into bitcoin.

“So not only did bitcoin rebound, but it did so violently and many will now wonder if the worst is behind it,” Erlam said.

pain to come

But all is not rosy for crypto this year. According to Fawad Razaqzada, market analyst at City Index, fears that the global economy is getting too hot could hurt bitcoin.

The US economy, for its part, is a bit too strong for some investors’ liking, suggesting that the Federal Reserve’s aggressive interest rate hikes have not had the dampening effect policymakers were looking for.

This has weighed on crypto prices as investors grow more confident that interest rates will stay higher for longer. Bitcoin is down around 2.6% in the past 24 hours on Wednesday, although it is still up around 8.5% in the past seven days.

Inflation has slowed from the 9.1% annualized rate reached in 40 years last year, but remains well above the Fed’s 2% target, reaching 6.4% in January. Meanwhile, retail sales and payrolls have risen and unemployment is down.

This may require further interest rate hikes by the US central bank. Goldman Sachs sees the Fed making three more hikes by summer. It has already raised its target rate from near zero to 4.75% over the past year.

Higher interest rates generally do not bode well for cryptocurrencies, as investors may be drawn to the safer returns offered by lower-risk assets.

With further rate hikes set to weigh on the US economy, this raises fears that the Fed could tip the US into recession.

“If growth concerns escalate, crypto assets may struggle to sustain this recovery,” Razaqzada told Insider.

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