By MATT OTT AP Business Writer
This year, the markets are turbulent, uncertainty reigns and the US government has had to intervene to save two major US banks in recent days. So why is bitcoin, considered one of the riskiest bets of all, rising so fast?
Just a few months ago, all forms of cryptocurrency seemed to be on fire, with bitcoin falling from nearly $50,000 at the start of 2022 to below $17,000 in 2023.
Bitcoin has since climbed more than 60% and it climbed another 8% on Friday above $27,000, all at a time of massive tech layoffs and widespread anxiety over the stability of the banking sector. American.
So what happened?
The pandemic has been an era of massive growth for tech companies and crypto. This push started to diminish at the end of 2021 when people started to travel, eat out or go to a show. They spent a lot less time in front of screens and at the same time the government stimulus checks that gave people a financial cushion started to run out. Crypto has started to fall in tandem with technology. Additionally, in March 2022, the US Federal Reserve began an aggressive series of rate hikes, its most powerful weapon in fighting inflation, which had begun to rise rapidly.
This sent bitcoin prices into a tailspin. Higher interest rates mean safe assets like Treasuries are becoming more attractive to investors as their yields have risen, dulling the shine of high-growth companies and other assets that carry more risk. This includes bitcoins.
Still, economic data from earlier in the year seemed to suggest that inflation had peaked, raising the possibility that the Fed would ease rate hikes, and that was the start of bitcoin’s rebound.
How did the recent bank meltdowns play into all of this?
The collapse of Silicon Valley Bank and Signature Bank actually fueled investment in bitcoin. In the eyes of Wall Street, a fragile financial system has further reduced the chances that the Fed could continue to raise rates, as had been the prevailing expectation as recently as early last week, before Silicon Valley Bank explodes.
“As the economy heads into a recession, the cryptoverse may look more attractive than stocks,” wrote Edward Moya of Oanda in a research report. “It appears the downside risks are greater for the S&P 500 than they are for Bitcoin.”
If an investor had invested $100 in bitcoin on Jan. 1 and $100 in an S&P 500 index fund, the bitcoin investment would have returned $60, compared to a return of $2 on the S&P bet.
So, will bitcoin continue to rise?
All eyes are now on the Federal Reserve, which is meeting this week and will decide what to do about its benchmark interest rate.
What the Fed does may not matter at all as far as bitcoin investors are concerned.
“Bitcoin is Dr. Jekyll and Mr. Hyde in terms of how it responds to Fed rate expectations,” Moya said. “For most of the past year, rising Treasury yields alongside rising expectations of Fed rate hikes have caused problems for Bitcoin. Fed rate cut bets are good news for cryptos, but a severe recession should prove troubling for all risky assets, including bitcoin.
Pictured above: An advertisement for the Bitcoin cryptocurrency is displayed on a street in Hong Kong on Feb. 17, 2022. (AP Photo | Kin Cheung, File)
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