The big winner so far this year is bitcoin — not stocks, gold or oil. In the first three months of 2023, it has jumped 70% in value. This rise has temporarily silenced critics who considered the cryptocurrency to be on its last legs after the chaos of 2022 — a year which saw the collapse of some of the main players in the crypto sector, including TerraLuna, Three Arrows Capital, Celsius, Voyager and FTX. But market sentiment has since turned around. And after recording constant falls and suffering from the rise in interest rates in the U.S., the cryptocurrency seems to have turned a corner. Bitcoin climbed to $28,000 last week, well above its record low of $15,700, which it recorded in November. The entire crypto universe is currently worth €1.1 trillion ($1.2 trillion).
Some analysts believe crypto’s rebound is due to the banking panic in March, sparked by the collapse of Silicon Valley Bank and the Credit Suisse takeover by UBS, its main competitor. “Concerns about the centralized banking system increased confidence in decentralized cryptocurrencies, and risk assets were boosted by prospects for a faster fall in inflation and interest rates,” argues Ben Laidler, a global market strategist at the investment platform eToro.
One of the side effects of the banking panic was that the U.S. Federal Reserve raised interest rates by 25 basis points, instead of the expected 50. Some investors interpreted this decision as a sign to return to the most volatile investments that promise the greatest returns, but come with the greatest risk.
The crypto community has welcomed this latest blow to financial institutions, considering it payback. For crypto investors, the banking panic in the U.S. and Europe confirms their belief that, in the future, all financial intermediaries will be gone and there will be a decentralized system, in which everyone can move their money without the need for banks.
In the wake of the panic, many crypto supporters took to social media to revel in the turn of events. “I am old enough to remember when the Credit Suisse CEO said Bitcoin is a bubble. Bitcoin was $7,000 then. Bitcoin is now $28,000. Meanwhile, Credit Suisse is getting acquired by a competitor and being bailed out by central banks,” Gabor Gurbacs, the CEO of PointsVilleApp, posted on Twitter.
Koh Onozawa, co-CEO of the cryptocurrency trading platform Bit2Me, attributes the rise in bitcoin to other factors. “Adoption is growing,” he told EL PAÍS, pointing out that large companies such as Mastercard and Visa have created their own Web3 department, while certain neobanks, such as Revolut, are making cryptocurrency available to their customers. “With the fall of bad apples, it is more important than ever to use regulated entities,” he said.
But there is an obstacle threatening to halt the rise of cryptocurrencies: the legal woes of Binance, the world’s largest crypto exchange. Binance and its founder Changpeng Zhao are being sued by the Commodity Futures Trading Commission (CFTC) for numerous alleged violations of the Commodity Exchange Act and CFTC regulations. For example, Binance did not require customers to provide any identity-verifying information. It also communicated with U.S. customers using a messaging platform that automatically deleted written communications, according to the news agency AP.
The market is now at a turning point. Some investors may opt to collect on their gains, given the uncertain economic context and growing fears of a U.S. recession. They may take a break and wait to see if cryptocurrencies continue on an upward trend. Other investors, however, may hang in rather than sell at a loss. Bitcoin is still worth half what it was in November 2021, when it peaked at $69,000. For those who bought bitcoin at that moment, selling now would mean remaining in the red.
In addition to recovering economically, cryptocurrencies are also hoping to restore lost confidence. The inflation crisis showed that investing in bitcoin — contrary to the claims of its supporters — was not a way to safeguard against rising prices. Now, the crypto community has come back with another argument: that the digital currency is a safe investment given the current problems facing the banking system.
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