After months of stagnation, fuelled by the collapse of several large cryptocurrency firms, including the recent collapse of FTX, Bitcoin, the world's largest cryptocurrency by market capitalisation, has broken above the psychologically important mark of $21,000, bringing renewed optimism among investors.
This milestone comes as investors anticipate that the digital asset may have reached a low point and as concerns about inflation continue to drive interest in it.
This marks the first time the digital asset has surpassed $20,000 since November 8 and the 11th consecutive day of rise.
Other major cryptocurrencies such as Ether and Cardano also saw significant gains, with the overall market capitalisation of the crypto market surpassing $1 trillion for the first time since November.
This spike in Bitcoin's value comes on the heels of a report on consumer prices that showed a decline in inflation in January compared to December.
Additionally, the US Federal Reserve plans to slash interest rate increases in response to this cooling, though they intend to continue raising rates until inflation shows more clear signs of slowing.
This has also led to an increase in risk assets, such as the Nasdaq 100 stock index, which has seen six consecutive days of growth.
Bitcoin Whales have resumed their BTC holdings
Raj A Kapoor, Founder, India Blockchain Alliance tells Moneycontrol that 2024 will be the year of Bitcoin's halving event, which possibly is spurring positivity and pushing up Bitcoin prices.
The Bitcoin halving event, which takes place every four years, sees the currency's miner payouts slashed in half (to 3.125 BTC).
Historically, Bitcoin halving events have been successful in establishing long-term bullish drivers for Bitcoin's price and the deflationary tendency of Bitcoin is closely related to the halving of its supply, which drives up the price.
Kapoor says the US Fed's interest rate talks are another factor that would probably contribute to Bitcoin's growth in 2023 and help it continue to outperform other asset classes.
“I also feel that large investors or Bitcoin Whales have resumed their Bitcoin holdings. The large Bitcoin Whales are keeping between 1,000 and 10,000 BTC in their wallets, according to data from Santimen, clearly indicating that investors have been stocking up on Bitcoin, which may be a hint of a recovery in the price of Bitcoin,” Kapoor adds.
Before this recent breakout, the price of Bitcoin had been relatively stagnant at around $16,000 to $17,000 for several weeks.
The sudden upward movement has caught many investors off guard, with crypto short liquidations exceeding $100 million in five of the last six days, reaching a high of $296 million on Saturday.
Bitcoin likely to form a new support at about $20k
Sharat Chandra, Co-founder, India Blockchain Forum, says the TradFi markets too have shown signs of optimism this week, with the S&P 500 clocking a gain of more than 2 percent.
He adds that these movements can be attributed to the continued downtrend in US inflation.
“Bitcoin and other digital assets have touched a high of 66 out of 100 on BTC Tools’ index. This is the highest recorded figure since September 13, 2022. A higher index indicates correction is on the anvil. Bitcoin is likely to form a new support level in the range of $19,000-20,000,” Chandra said.
The cryptocurrency market recently experienced a significant drop, which was largely attributed to the collapse of the crypto exchange, FTX.
The exchange, owned by Sam Bankman-Fried, has been accused of engaging in illegal activities, such as misusing customer funds.
Authorities have charged Bankman-Fried with committing one of the largest financial frauds in American history.
While he has pleaded not guilty, if found otherwise, he could face a prison sentence of up to 115 years for various crimes, including conspiracy to commit wire fraud on customers, wire fraud on customers, conspiracy to commit wire fraud on lenders, wire fraud on lenders, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and conspiracy to violate US campaign finance laws.
