Want to get back to bitcoin? Here’s what you need to know.

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Bitcoin surged in 2023. This may be due to a pause. The time of dreams

Bitcoin is up 80% this year, topping the S&P 500, up 7%, and boosting calls for a new crypto bull market. If you’re considering getting into crypto, here are a few things you should know.

The first is that it makes sense for Bitcoin to rise, surpassing $30,000 for the first time since last June. Crypto has long acted as an extension of technology, which has been challenged by rising interest rates. Hopes are now high that the Federal Reserve is nearly done with raising rates, fueling gains in tech stocks and risky assets like crypto.

A Fed reversal or pause will boost risky assets, including Bitcoin, said Alex Thorn, head of research at crypto financial services group Galaxy Digital.

Crypto traders can also anticipate tighter Bitcoin issuance supplies. The software code underlying the token periodically halves the amount of new Bitcoins produced by the mining or transaction processing process on its blockchain network. The next halving event is expected to take place in April or May 2024, reducing mining rewards from 6.25 to 3,125 Bitcoin for each block of transactions.

Were about a year away from the next Bitcoin halving. Historically, these events have been bullish for the digital asset, says Thorn.

Bitcoin, and crypto more broadly, may have been overdue for a rally following a bear market that wiped out over $2 trillion in token value, pushing bitcoin to a low of around 16,000. dollars last year. A series of bankruptcies, frauds and corporate collapses, punctuated by the implosion of Sam Bankman-Frieds FTX, has severely depressed demand and trading volume.

Another factor fueling Bitcoin could be the recent bank run, including the failures of Silicon Valley Bank and Signature Bank. Crypto apostles have long argued that bank deposits are not as secure as Bitcoin, which an individual can own directly through a digital wallet, rather than relying on a bank or middleman.

In reality, digital deposits have proven to be much less secure than dollar deposits held in banks. Crypto traders have lost billions of dollars worth of tokens to hacks, frauds, and the collapse of exchanges like FTX. While it’s possible to keep your crypto locked in a digital wallet, to which only you have the keys, many merchants offload their tokens to exchanges, which may not keep client assets separate, turning depositors into creditors. in bankruptcy proceedings.

These are signs of another inflating crypto bubble. One indicator is that the number of digital wallets holding small amounts of Bitcoin has grown much faster than those holding larger amounts. This may be a sign that the rally is being fueled by small traders, similar to the meme stock market frenzy.

The number of wallets holding at least 0.01 Bitcoin for around $300 has increased by more than 3% since the start of the year, according to crypto-data group Messari. Growth decreases as wallets get bigger: the number of wallets containing at least one bitcoin increased by around 1.5%, while wallets containing more than 10 bitcoins only increased by 0.5%.

Analysts are also eyeing targets for Bitcoin that suggest the rally could run out of steam in the near term. Katie Stockton, technical analyst and managing partner at Fairlead Strategies, sees resistance on the upside in Bitcoin near $35,900, while its support level stands at $25,200. We will maintain strict attention to risk management, Stockton said.

Even crypto bulls are seeing muted short-term gains.

I expect Bitcoin to move between $25,000 and $35,000 until the end of November, said Sam Yilmaz, co-founder of venture capital fund Bloccelerate. Yilmaz, however, is more optimistic in the longer term: once the halving takes place, Bitcoin will be in tears for the next 12 months, surging above $150,000, he predicted.

Ultimately, investors face some critical questions, including the lingering confusion over exactly why prices are behaving the way they are and whether the latest momentum can continue. A much tougher regulatory climate is also emerging in the US with agencies like the Securities and Exchange Commission taking an increasingly hard line on even blue chip crypto companies, like Coinbase Global (COIN ).

The current price structure should generate FOMO [fear of missing out] among investors, many of whom have already missed out, said Naeem Aslam, chief investment officer at Zaye Capital Markets.

There are reasons why an investor may want to get into crypto now: as an expression of a sense of risk, a bet on a Fed policy pivot, or the belief that Bitcoin will one day fulfill its promise in as a true alternative currency and asset. The latest may be FOMO, however, and it’s as risky as ever.

Write to Jack Denton at [email protected]

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