Crypto fans have always known: Bitcoin (BTC) is coming back. In fact, the largest crypto asset in terms of market capitalization is making a brilliant comeback: the Bitcoin price has risen by a good 80 percent since the beginning of the year. On January 1, a coin was only worth $16,600, but it’s now around $30,000 again.
It is still only half as much as it was at its all-time high at the end of October 2021. At that time the price was $ 60,600. But the course fireworks in Bitcoin are now radiating to the entire sector: The second largest cryptocurrency Ether (ETH) also made a good leap and has increased by 74 percent since the beginning of the year. Theme ETFs on Bitcoin or the underlying blockchain technology are also seeing strong gains.
There is some evidence that the resurgence of the crypto world is likely to continue for a while. And that despite or precisely because of the recent banking crisis in the USA, in which several players in the crypto scene have stumbled enormously.
One example is Silvergate Bank. It specialized in cryptocurrencies and had to be settled on March 9th. While the crypto bank didn’t play a major role in the general US banking system, it was hugely important to the crypto scene. Companies could use them to transfer money. After the crypto exchange FTX went bankrupt at the end of 2022, however, customers withdrew their money en masse. In addition, several of its corporate clients were targeted by regulators, including what is now the world’s largest crypto exchange, Binance, and crypto exchange Gemini, which has since been shut down.
What may seem bizarre at first: The cryptocurrencies benefited from the turbulence on the (crypto) market of all things. Bitcoin had bottomed out by March 10th at the latest. On that day, the Silicon Valley Bank went bankrupt after the US Federal Reserve raised interest rates too quickly, the bank then reacted too slowly and messed up the maturity transformation.
Since then, bitcoin has increased almost exclusively – also because investors have fled to alternative asset classes out of concerns about the stability of the US banking system and individual institutions. Another factor is the US inflation data for March. At 5.0 percent, inflation was better than expected, which gave Bitcoin an additional boost. In February, the consumer price index was still 6.0 percent.
The even more important reason for the Bitcoin recovery are the interest rates: In general, lower interest rates are good for the prices of crypto companies and currencies because investors then act and invest with greater risk. Many market participants and crypto fans are increasingly hoping that the central banks will slow down their fight against inflation and that interest rate increases will therefore be weaker. When there is a turnaround in interest rates, many financial players expect the next price rally that they want to be part of – and they are already getting involved in it.
Before the next Fed interest rate meeting on May 3rd, however, things could get shaky again. Observers expect that Fed Chair Jerome Powell will raise interest rates again by 0.25 percentage points to a range between 5.0 and 5.25. It would be the tenth increase in a row. Analysts do not expect interest rate hikes to pause until summer.
However, one problem for the crypto scene remains: the planned stronger regulation. Politicians have been pushing for stricter rules for cyber currencies and the entire industry for some time. The US Securities and Exchange Commission has been targeting crypto companies for a long time. Your boss Gary Gensler wants to launch a major offensive against several crypto providers and classify many crypto currencies or tokens as securities. According to this, some providers are likely to be in breach of applicable securities laws, which would result in a consolidation of the market.
A lawsuit by the US authority CFTC against the crypto exchange Binance is already underway. The SEC supervisors, in turn, sent a Wells notification to America’s largest crypto exchange, Coinbase, that they were planning punitive measures. The blockchain Etherum, on which the cryptocurrency Ether is based, could also be affected by regulatory steps.
Stricter regulation is intended to prevent the risk of crises in the crypto market also infecting the traditional financial system. However, a tougher environment for crypto firms could slow — or even reverse — the rally in prices.
Editor’s note: This text was first published by CAPITAL.
