Bitcoin up 80 percent: is BTC celebrating a comeback?

Mila April 27, 2023

0 2,065 6 minutes read

It is just under half a year ago that warnings of the collapse of the entire crypto market made the rounds. The bankruptcy of FTX, once the third-largest trading platform for Bitcoin and Co., had damaged investor confidence in the sector. Within a few days, assets worth billions were lost. The FTX crash was the culmination of a year that had already brought various bad news to crypto investors.

But investors apparently got over the shock just a few months later. Since the beginning of the year, Bitcoin has gained a good 80 percent in value. Most recently, the oldest and best-known cryptocurrency was listed at $29,835. On a daily basis, Bitcoin gained 5.3 percent in value.

Hope is spreading among investors that Bitcoin and Co. have survived the worst and that prices are now reaching old levels again. In the meantime, Bitcoin had even broken the $30,000 mark. But there is plenty of room for improvement: Bitcoin is still a long way from its record high in November 2021 (a good $69,000). Nevertheless: The new brands are a positive signal for further price development. Is the digital currency about to make a comeback?

There are signs this Wednesday that the uptrend in Bitcoin will continue. That is when data will be published in the USA that are considered trend-setting for the markets – including for the crypto markets. One issue that has already determined the performance of cryptocurrencies in the past year remains crucial for the further development of Bitcoin: inflation.

Will inflation continue to fall?

In the US, inflation rose 5 percent in March compared to the same month last year. This was below the expectations of experts. Analysts forecast an inflation rate of 5.2 percent. The decline in inflation is thus continuing. In February it was 6 percent in the United States, having peaked in June at 9.1 percent.

In order to curb the high inflation, the central banks had ended the zero interest era with an emergency stop. In the USA, the Fed raised the key interest rate to 4.75 to 5 percent. While the Fed raised interest rates at record speed, Bitcoin went down at about the same speed.

With the turnaround in interest rates, safer investments such as bonds became more attractive again. Government bonds are again yielding more than three percent, while cryptocurrencies do not bring current income. In response, many investors threw Bitcoin and Co. out of their depots.

The recently declining inflation data are fueling hopes of a further price recovery, says Timo Emden from the analysis company Emden Research. He attributes the recent rally largely to this factor. “Investors still hope that the simmering concerns about inflation and interest rates will lose momentum and that the monetary policy headwinds on both sides of the Atlantic could ease further.” If inflation continues to fall, the pressure on the central banks to act will decrease – and away would benefit cryptocurrencies.

In the hands of the Fed

Investors will have to wait until May 3 to see whether the US Federal Reserve will raise interest rates again by 0.25 percent or take a break. Fed Chair Jerome Powell recently emphasized that inflation remains high. The central bank’s inflation target of two percent is well below the current level of inflation.

Powell has signaled that the Fed will be guided by economic data and will feel its way from meeting to meeting. The rate hikes are already having an impact on the US economy. The service sector has lost momentum, industry is suffering and the banking crisis is unsettling consumers and markets. In the US, there are concerns about a recession. A further interest rate hike is considered likely. However, it remains uncertain to what extent the Fed will tighten interest rates. The fate of bitcoin remains in the hands of the Fed for now.

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But not only the decisions of the central bank determine the further development of crypto courses. In the US in particular, regulators are targeting crypto companies. Only recently, the Commodity Futures Trading Commission (CFTC) regulator filed a lawsuit against Binance, the world’s largest crypto exchange, and its boss Changpeng Zhao. She accuses the company of conducting business without the necessary licenses and of being too lax in customer verification. The trading platform has long been criticized for its business practices.

Competitor Coinbase is also in the sights of the supervisor. A few weeks ago it became known that the US Securities and Exchange Commission (SEC) was investigating various staking products. From the point of view of the SEC, these are subject to authorization because they are securities. Coinbase disagrees. With staking, investors release their coins to generate more digital coins in return for a predetermined reward. A staking out would hit Coinbase financially. According to experts, three percent of Coinbase revenue comes from staking.

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