Bitcoin had a tough 2022. Now investors are looking toward 2023 with caution when it comes to cryptocurrencies.
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Bitcoin rose further over the weekend, as traders took news of another crypto bankruptcy in their stride and placed bets on a Federal Reserve “pivot” to cutting interest rates.
The price of the No. 1 token briefly topped $23,000 for the first time since Aug. 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 as high as $1,664.78 on Saturday — the first time it has surpassed $1,600 since Nov. 7, 2022. As of 6:40 a.m. ET, ether was worth $1,639.30 apiece.
Bitcoin has kicked off 2023 on a positive note, with investors hoping for a reversal in 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, like stocks and digital tokens. Publicly-listed tech stocks and private venture capital-backed start-ups particularly took a beating, as investors sought protection in assets perceived as safer, such as cash and bonds.
With inflation now showing signs of cooling in the U.S., some market players are hopeful that central banks will start easing the pace of rate rises, or even slash rates. Economists previously told CNBC they predict a Fed rate cut could happen as soon as this year.
“Fed tightening seems to be lighter and inflation less of a risk,” Charles Hayter, CEO of crypto data site CryptoCompare, said in emailed comments to CNBC. “There is hope there will be more caution to rate rises globally.”
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 slowdown in economic activity.
The world’s top digital currency, bitcoin, is “increasingly looking like it has put in its bottom,” according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
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.
A wipe-out of those short positions sparked by the rising price of bitcoin has added “fuel to the fire,” Ayyar said, as short sellers are forced to cover their bets by buying back the borrowed bitcoin to close them out.
What crypto collapse?
Investors don’t seem to have been greatly perturbed by the collapses of top crypto companies, stemming from the fallout of digital currency exchange FTX’s insolvency in November.
Last week, the lending arm of New York-based crypto investment firm Genesis became the latest casualty of the crypto crisis, seeking bankruptcy protection in a “mega” filing listing aggregate liabilities ranging from $1.2 billion to $11 billion.
“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,” Mati Greenspan, founder and CEO of …….