In recent months, the cryptocurrency sector has experienced several setbacks, including bankruptcies, the arrest of FTX founder Sam Bankman-Fried and regulatory action against leading exchange Binance. But despite everything happening, the cost of Bitcoin, the largest crypto, has increased.
Bitcoin’s value has increased by 65% this year, outpacing the S&P 500’s 7% increase by a wide margin. Even the NASDAQ, a heavily weighted index for technology, has only produced a fraction of Bitcoin’s gains.
According to analysts, Bitcoin has actually profited from the cryptocurrency crisis since the upheaval has driven investors away from unpopular coins and toward the market leader. Additionally, the price has been boosted by broader economic dynamics, such as financial system problems and slower interest rate hikes.
However, the upcoming months are unpredictable, according to the experts, since a potential recession could put a young (under 15 years old) digital asset’s performance to the test.
Bitcoin’s explosive performance in 2023 comes as a surprise after falling precipitously in value the previous year. Bitcoin’s price decreased by 65% overall last year, which was more than twice the S&P 500’s 20% decline. Bitcoin’s price drops, which affected a large portion of the cryptocurrency market, occurred at the same time as a rash of aggressive interest rate increases that put negative pressure on a variety of assets, including the main stock indices.
A multitude of failures were prompted by the crypto crisis. For starters, Terra and its sibling counterpart, Luna, both collapsed in May of last year. Additionally, numerous cryptocurrency lenders, including Genesis, Celsius and Block Fi, declared bankruptcy in 2022. In a stunning turn of events, the cryptocurrency exchange FTX also declared bankruptcy in November following a quick collapse that was followed by the arrest of its founder. Bankman-Fried has entered a not-guilty plea to all 13 of the charges against him, including conspiracy and fraud.
The surge in Bitcoin’s price has corresponded with positive trends in the broader economy as the Federal Reserve has paused its interest rate hikes and dissatisfaction with the traditional banking system has prompted most investors to seek refuge in digital assets.
Three of the top 30 banks in the country have collapsed since March. The regional lender PacWest Bancorp’s stock crashed on Thursday after the bank reported losing 9% of deposits the previous week, showing that the financial situation is still unstable.
According to analysts, Bitcoin might keep increasing throughout the year even if the Fed stops raising interest rates, as many investors anticipate. However, the Fed issued a warning that an impending recession would result in instability.
Those concerns notwithstanding, when a major crypto of the magnitude of Bitcoin performs well, it bodes well for the entire industry, and enterprises such as Canaan Inc. (NASDAQ: CAN) could register an uptick in their business activities as a result of that positive momentum exhibited by Bitcoin so far this year.
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