Bitcoin 2023 rally is gaining momentum as the cryptocurrency surpasses $23,000

bitcoin It rallied further over the weekend, as traders took news of another cryptocurrency bankruptcy their way and placed their bets on Federal Reserve “Pivot” to lower interest rates.

The price of the #1 token briefly surpassed $23,000 for the first time since August 19, 2022, according to data from CoinGecko. It has since fallen slightly to $22,859.20. The jump sent bitcoins up nearly 39% since the beginning of January.

Ether, the second-largest digital currency, surged to $1,664.78 on Saturday — the first time it has topped $1,600 since November 7, 2022. As of 6:40 a.m. ET, ether was worth $1,639.30 apiece.

Bitcoin started 2023 on a positive note, as investors hoped for a reversal of the monetary tightening that spooked market players last year.

The Fed and other central banks began cutting interest rates in 2022, shocking holders of risky asset classes, such as stocks and digital tokens. Stocks of publicly listed tech companies and private venture capital-backed startups have been particularly battered, as investors sought protection in assets seen as safer, such as cash and bonds.

With signs of inflation now emerging in the US, some market players are hoping that central banks will start to ease up on interest rate hikes, or even cut rates. Economists He previously told CNBC expect a Cut the Federal Reserve rate It could happen as soon as this year.

“The Fed’s tightening appears to be lighter and inflation is less of a risk,” Charles Hayter, CEO of crypto data site CryptoCompare, said in comments emailed to CNBC. “There is hope that there will be more caution in rising interest rates globally.”

The Fed is likely to keep interest rates high for the time being. However, some bank officials have recently called for a reduction in the size of the quarterly interest rate hikes, fearing a slowdown in economic activity.

According to Vijay Ayyar, Vice President of Corporate and International Development at Crypto Exchange Luno, the world’s top digital currency, Bitcoin, “is increasingly looking as if it is at its bottom.”

According to Ayyar, bitcoin short sellers have been pressured by the sudden upward movements in the price. Short selling is an investment strategy whereby traders borrow an asset and then sell it in the hope that it will decrease in value.

The erasure of those short positions triggered by the bitcoin rally has added “fuel to the fire,” Ayyar said, as short sellers are forced to cover their bets by buying back borrowed bitcoin to close out.

Last week, the lending arm of New York-based crypto investment firm Genesis became He The latest victim of the cryptocurrency crisisseeking bankruptcy protection in a “massive” filing that lists total liabilities ranging from $1.2 billion to $11 billion.

“The Genesis disaster has been unfolding for a while and is probably already priced in. On the other hand, FTX has already had a significant impact on many investors, on market psychology and on the pricing of many toxic assets,” Mattie Greenspan, founder and CEO of the advisory firm Crypto Investing Quantum Economics, for CNBC.

“It should be noted, however, that the price of bitcoin itself is very limited because FTX never had anything on their balance sheets.”

Bitcoin is still down nearly 67% from its all-time high, despite its recent rally.

The latest cryptocurrency plunge is different from previous cycles, in large part due to the role played by leverage. Major cryptocurrency players have become embroiled in risky lending practices, offering huge returns that many investors now say are unsustainable.

This began in May with the collapse of terraUSD – or UST – an algorithmic stablecoin that was supposed to be pegged one-to-one with U.S. dollar. The failure of UST led to the collapse of terraUSD’s sister luna token and hit companies with exposure to both tokens.

Three Arrows Capital, a hedge fund with a bullish view on cryptocurrency, They indulged in filtering due to its exposure to terraUSD.

Then came a file November FTX breakdownOne of the largest cryptocurrency exchanges in the world. It was run by Sam Bankman Fried, an executive who was often in the spotlight.

The fallout from FTX continues to ripple through the cryptocurrency industry. Nearly $2 trillion in value has been erased from the overall cryptocurrency market since the peak of the cryptocurrency boom in November 2021, in a period of deep recession known as the “crypto winter.”

One analyst warned that technical indicators suggest there could be some retracement from the token’s recent rally.

Yuya Hasegawa, a cryptocurrency market analyst at the Japanese bitcoin exchange Bitbank, said that while bitcoin trend indicators generally point to a strong bullish trend, the relative strength index, or RSI, deviates from the upward movement of the price and begins to slide downward, which is not a good sign for a trend. current price.”

“Bitcoin could test the August high and be supported at $20K~$21K, but with RSI divergence and a couple of big tech gains coming this week, it could become unstable,” Hagesawa said in a note on Monday. completely”.

However, the recent consolidation of the Bitcoin price has given some investors hope that the ice may start to melt.

Greenspan said that a bullish moment in bitcoin is typical for the cryptocurrency, as investors anticipate the next so-called “halving” event — a change in the bitcoin network that will cut rewards to miners in half. It is seen by some investors as positive for the token price, as it puts pressure on supply.

The next halving is scheduled to take place sometime between March and May of 2024.