The cryptocurrency market was hit last year by the effects of the collapse of FTX, until then the second largest crypto exchange in the world, which plunged into an unprecedented crisis and went bankrupt.
The “crypto winter” of 2022 — a period when cryptocurrency prices plummeted, resulting in huge losses for investors holding these assets in their portfolios — was marked by company failures, racing withdrawals, and uncertainties regarding the future.
Even in the face of a still unstable market scenario, with many companies in the sector announcing layoffs, the first days of January indicated a strong appreciation movement for bitcoin, the world’s first and most widely circulated cryptocurrency.
Between January 1 and 17, according to Trading View data, Bitcoin recorded a cumulative increase of nearly 30%, crossing the $21K mark. The virtual currency has not performed so well, for several days in a row, since November 2013, when it lined up 15 consecutive days of highs.
On Thursday (19/1), bitcoin closed with a gain of 1.5% in the US market, at $20,900. In the Brazilian market, the increase was 1%, reaching the level of R$109,000.
The digital currency is still far from the peak recorded in 2021 ($69,000), but the performance of the crypto asset in the first weeks of 2023 was already enough to erase the losses caused by the FTX crash. The valuation in 2023 is five times higher than the US NASDAQ stock index (which is up nearly 6% in the same period).
What explains the rise of bitcoin?
According to their consulting analysts capital CitiesCalming down inflation in the USA and indicating that as a result, the base interest rate for the US economy may fall in the near future, are some of the reasons that have led to the rise in the value of Bitcoin.
Cryptocurrencies are, in general, a riskier asset than fixed-income investments, for example — providing the opportunity for greater returns.
Forecasts indicate that some investors allocate between 1% and 10% of equity to these high-risk assets. With the possibility of lower inflation and lower interest rates in the United States this year, crypto assets are becoming more attractive. After all, low interest rates reduce the profitability of fixed income, which encourages investors to be more aggressive.
The strong market volatility, which is characteristic of cryptocurrencies, also explains the rise of Bitcoin at this time. After periods of heavy losses, as happened at the end of last year, the trend is for these assets to go through waves of strong rise.
According to Isaac Costa, Professor at Ibmec and Partner at Warde Advogados, “The volatility of these assets is naturally high, with impressive highs and often faster lows.” “We usually say the market is going up the stairs and down the elevators,” he said in an interview with capital Citiesin December.
You have no clear economic fundamentals to set prices and you are governed by very sensitive forces of supply and demand. For better or worse, prices always overreact. Volatility is normal both to the upside and downside of this asset class. What is changing in this market in relation to other bubbles that we know of is that, it seems, it has managed to pop up again.”