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Bitcoin's 2023 Rally Continues as Cryptocurrency Briefly Tops $23,000

Bitcoin prices continued to rise over the weekend, as traders appeared to shrug off news of another crypto bankruptcy. Instead, they appeared to be betting that the Federal Reserve would soon cut interest rates.

January 23, 2023
5 minutes
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Bitcoin prices continued to rise over the weekend, as traders appeared to shrug off news of another crypto bankruptcy. Instead, they appeared to be betting that the Federal Reserve would soon cut interest rates.

The price of the No. 1 token briefly topped $23,000 for the first time since August 19, 2022, according to data from CoinGecko. It has since ebbed slightly to $22,859.20. The jump brings bitcoin up almost 39% since the start of January.

Ether, the second-biggest digital coin, rallied to a new all-time high of $1,664.78 on Saturday. This is the first time ether has surpassed $1,600 since November 7, 2022. As of 6:40 a.m. ET, ether was worth $1,639.30 apiece.

Bitcoin has started the year off on a positive note, with investors hoping for a reversal in the monetary policy that spooked markets last year.

In 2022, central banks began cutting interest rates, which shocked investors in risky asset classes like stocks and digital tokens. Publicly-listed tech stocks and private venture capital-backed startups took a particularly hard hit, as investors sought safety in assets like cash and bonds.

As inflation begins to cool down in the United States, some market players are hopeful that central banks will start to ease the pace of interest rate increases, or even reduce rates. Economists have previously told CNBC that they predict a Federal Reserve rate cut could happen as soon as this year.

Charles Hayter, CEO of crypto data site CryptoCompare, said in emailed comments to CNBC that he believes the Fed's tightening will be lighter than expected and that inflation is less of a risk. He added that there is hope that central banks around the world will take a more cautious approach to interest rate increases.

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

According to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, bitcoin is "increasingly looking like it has put in its bottom." This is good news for investors, as it suggests that the world's top digital currency may be stabilizing after a period of volatility.

Bitcoin short sellers have been squeezed by sudden upward moves in prices, according to Ayyar. Short selling is an investment strategy whereby traders borrow an asset and then sell it in the hope that it will depreciate in value. However, when prices unexpectedly rise, short sellers can be forced to buy back the asset at a higher price, leading to losses.

When the price of bitcoin rises, short sellers are forced to buy back the borrowed bitcoin to close out their positions, which Ayyar says has added "fuel to the fire."
Investors don't seem to have been greatly perturbed by the recent collapses of top crypto companies. This is likely due to the fallout from digital currency exchange FTX's insolvency in November. While this was a major setback for the crypto industry, it appears that investors are still confident in the long-term prospects of the sector.

Last week, the lending arm of New York-based crypto investment firm Genesis filed for bankruptcy protection, listing aggregate liabilities ranging from $1.2 billion to $11 billion. This is the latest casualty of the crypto crisis.

Mati Greenspan, founder and CEO of crypto investment advisory firm Quantum Economics, told CNBC that the Genesis debacle has been playing out for a while and is likely priced in already. FTX, on the other hand, has already had a significant impact on many investors, on market psychology and on the prices of several toxic assets.
It's important to remember that the price of bitcoin is quite limited since FTX didn't have any on their balance sheets. This is something to keep in mind when considering investing in bitcoin.

Bitcoin is still well below its all-time high, despite its recent surge.

The recent crypto market crash is different from past cycles in a number of ways, but one of the most notable is the role played by leverage. Many of the major players in the crypto world became entangled in risky lending practices, offering investors high yields that many now say were unsustainable.

In May, the terraUSD (UST) stablecoin collapsed. UST was supposed to be pegged one-to-one with the US dollar, but the failure of the coin brought down its sister token, luna. Companies with exposure to both tokens were hit hard by the collapse.

Three Arrows Capital, a hedge fund with bullish views on crypto, has been forced to liquidate its assets after suffering heavy losses on its terraUSD investment.

Then came the November collapse of FTX, one of the world's largest cryptocurrency exchanges. The exchange was run by Sam Bankman-Fried, an executive who was often in the spotlight.

The fallout from FTX continues to have an impact on the cryptocurrency industry. Since the peak of the crypto boom in November 2021, the overall value of the crypto market has decreased by around $2 trillion, in what is known as a "crypto winter."

One analyst cautioned that technical indicators suggest there could be some pullback from the token's recent rally. However, they remain optimistic about the long-term prospects of the token.

According to Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank, while bitcoin's trend indicators are generally pointing to a strong upward trend, its relative strength indicator (RSI) is starting to diverge from the price movement and slide down. This is not a good sign for the current price trend.

Hagesawa said in a Monday note that Bitcoin could test its August high and be supported at the $20k~$21k level, but with its RSI's divergence and a couple of big tech earnings ahead this week, it could get quite unstable.

Some investors are hopeful that the recent bitcoin price boost signals the beginning of a recovery.

Greenspan said that the upward momentum in bitcoin is typical of the cryptocurrency, as investors anticipate the next so-called "halving" event - a change to the bitcoin network that reduces rewards to miners by half. Some investors view this as positive for the price of the token, as it squeezes supply.

The next halving is expected to occur between March and May of 2024.

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Cathy Hills
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