Bitcoin (BTC) is starting 2023 with a bang after reversing its year-long plunge.
According to CoinDesk data, the market capitalization top cryptocurrency has jumped about 72% this year to $28,500, marking the highest quarterly gain in the past two years. This price increase has boosted the market value of crypto assets to $542 billion.
Just three months ago, some pundits thought Bitcoin could drop to $12,000 this quarter, after its valuation dropped 76% since November 2021.
The rally has pushed Bitcoin ahead of the second-largest cryptocurrency by market capitalization, Ethereum (ETH), and is expected to gain more than 50% on a quarterly basis. Meanwhile, gold rose about 7% and the Nasdaq Composite Index, an index of Wall Street tech stocks, rose about 15%.
This is believed to be driven by expectations that central banks such as the US Federal Reserve (Fed) will give up aggressive interest rate hikes in response to signals of recession.
Hopes of a Fed reversal were heightened in early March after three US banks failed and the Fed launched an emergency funding program to deter panic in the banking sector. Central bank balance sheets recently expanded by $300 billion, unwinding months of quantitative tightening. According to Fed Funds futures, traders expect the Fed to cut interest rates by 0.25% in June to start an easing cycle.
“It’s all about expectations of easing by central banks, especially the Fed,” Martin Leinweber, digital asset product specialist at MarketVector Indexes, told CoinDesk TV. “Of all the risk assets, Bitcoin is the most sensitive to liquidity swings.”
Bitcoin Opportunity Fund Managing Partner David Foley said healthy attractive monetary assets like Bitcoin and gold are benefiting from liquidity injections.
“The Fed suddenly had to change course and go back to quantitative easing to protect the banking system, so money is pouring into sound money assets like gold and silver. Bitcoin is sound money. So we will be the fastest in this race,” Foley said of QE on CoinDesk TV.
Some believe that the deterioration of bitcoin’s order book depth played a major role in the price surge.
Orderbook depth is how easy it is to trade large volumes at stable prices. Since the FTX bankruptcy, depth has steadily declined, hitting a 10-month low in early March. In other words, small buy orders now have more impact on price.
“This time around, the narrative of being a hedge against the financial crisis pushed bitcoin, but there was little upside resistance to overcome,” said Conner, an analyst at Paris-based crypto data firm Kaiko. Connor Ryder said in a recently published analysis article.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Bitcoin Heads for Best Quarter in Two Years, Outperforms Ether, Gold, Nasdaq
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