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Still down by more than half from peak, Bitcoin surges. Why?
Bitcoin has come surging back since the start of 2023 after plummeting the year before along with other digital coins. The original cryptocurrency, although some experts in money markets doubt it should be called a currency, has seen its value rise by over 70% since the start of the year. However, it is still well-below its peak in November 2021, when it hit $69,000, at less than $29,000. So why has Bitcoin been rising recently?
Interest rates. The Fed has been raising the cost of borrowing at a pace not seen in four decades, one of the reasons digital coins had a rough patch, to tackle inflation, but the prediction is that central bank policymakers are reaching the end of monetary tightening. That would bouy risky assets like Bitcoin, and it is very risky, with price spikes and drops that can give one vertigo.
“Bitcoin is not just a risk asset, it is arguably the most sensitive to monetary liquidity out of all of the risk assets,” Noelle Acheson, an economist who has tracked the crypto sector for seven years told Reuters.
But who is investing?
Analysts say retail investors, both big and small, which are its core users have driven the rise. However, institutional investors have been taking the opportunity to get their money out, with bitcoin investment products, favored by them, seeing $113 million in outflows last week, a move ascribed to seeking liquidity as turmoil in the banking sector continues.
