Bitcoin starts the year well. In the space of a few days, the price of cryptocurrency rose above the symbolic threshold of 20,000 dollars, stimulating the entire digital asset industry. We take stock of the causes and consequences of the increase.
Last year, the price of Bitcoin gradually collapsed. After the successive disappearances of several pillars of the ecosystem, including the FTX platform and the UST of Terra Labs, the queen of cryptocurrencies ended the year below $20,000, far from its historic record at the end of 2021, at the gates of 70,000 dollars. For the first time since late 2020, Bitcoin traded around $17,000 for long weeks.
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The big comeback of Bitcoin?
After a dark year, Bitcoin started 2023 with a bang. Digital currency has experienced a meteoric rise of 30% since January 11. After weeks of struggling between $16 and $17,000, the cryptocurrency surged upwards in the space of a weekend. In a few days, Bitcoin recrossed $20,000, its all-time high at the end of 2017.
At the moment, BTC is trading around $21,000. This is the first time since the summer of 2021 that the Bitcoin price has accumulated so many days in the green. Most cryptocurrencies are seeing a similar rise. For example, Ether gained 20% in a few days, taking the price just above $1500. The currency remains far from its historical record of 4,500 dollars, which dates from 2021. Note the meteoric rise of the Solana (SOL), which is taking advantage of the launch of the Bonk cryptocurrency to regain color.
Driven by Bitcoin, the cryptocurrency industry has returned the $1 trillion mark. The total capitalization of the ecosystem now revolves around this threshold. As of this writing, the market valuation is estimated at $995 million by CoinMarketCap.
Unsurprisingly, this unexpected rebound brings smiles to bitcoin miners. The crash had deeply damaged the profitability of mining farms, pushing some players to their limits. Some industry flagship companies listed on the stock exchange suffered significantly from the market downturn. Back to the wall, the giant Core Scientific has also declared bankruptcy.
Thanks to the increase, the miners were able to rebalance their activities, reveals the latest Glassnode report. The blockchain analysis firm estimates that the average cost of producing one Bitcoin is around $17,962, which leaves a nice margin for miners. If the price goes back below 17,000 dollars, the industry could again encounter difficulties, nevertheless warns Glassnode.
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Bitcoin mimics the economy
Despite its ambitions as a safe haven, Bitcoin currently remains very correlated with traditional finance. When stock market indices go up again, cryptocurrency generally experiences a rebound. This is exactly what is happening at the moment. The price is simply reacting to the increase in certain reassuring indicators for investors and traders.
After a gloomy 2022, the global economy is indeed showing encouraging signs. The actions taken by the US Federal Reserve appear to have stemmed inflation. According to figures from the US Department of Labor, inflation fell to 6.5% in December, from 7.1% in November. In June, inflation reached 9.5%, beating a sad forty-year-old record.
“A mix of news, including slowing US inflation, kept markets happy, but the revival of cryptoassets was much more energetic than that of other asset classes”explains Simon Peters, an analyst at eToro.
In parallel, stock indexes show in the green. Last Friday, the three major indexes of the New York Stock Exchange ended the week with a monthly record. More generally, the world economy seems to have escaped the recession that has been looming for a year, at least in the short term. In this context, analysts expect a stabilization phase, which will affect the riskiest assets, including cryptocurrencies.
“Short traders have become cautious, which could lead to prices stabilizing in the short term”Explain a report by Arcane Researchdismissing the prospect of an imminent correction.
At the same time, the Bitcoin mining difficulty broke a new record last weekend. As is the case every two weeks, the difficulty has adapted to the computing power available on the network. This increase indicates that there is great competition between miners, which secure blockchain transactions. As Simon Peters explains, it is a “long-term positive indicator »:
” It’s about […] a common signal during or after bearish episodes, when bottom usage and development continues despite falling prices”.
Forecasts for the end of 2023
In this context, some analysts do not hesitate to prophesy the great return of the bull run, a strong bull phase in stock market jargon. For Bloomberg analysts, King Bitcoin could well have a good year, taking advantage in particular of an economy that will remain marked by geopolitical tensions. Asked by CNBCbillionaire Tim Draper expects Bitcoin to reach $250,000 by the end of the year.
Other observers want to be more cautious. They estimate that the market will not break new records before horizon 2024, despite the recent recovery. Until next year, Bitcoin could still fall lower. For the Standard Chartered bank, it is possible that the currency will collapse around 5,000 dollars, pointing to the fragility of the players in the ecosystem:
“More and more companies and cryptocurrency exchanges find themselves with insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence”.
