Throughout 2022, the economy at large saw some turbulence. But the cryptocurrency market, in particular, experienced a downward slide from its epic heights in 2021. Even the oldest surviving cryptocurrency, Bitcoin, saw its value tumble from over $60,000 to under $17,000.
Investors interested in cryptocurrency couldn’t help but wonder when Bitcoin’s value would bounce back. That time seems to have finally come. Bitcoin saw its price surge 20% in March, leading many to wonder what changed. This article will explore why this reversal is happening and whether we think it will continue.
- Currently trading around $28,000, Bitcoin has recovered almost $10,000 in value since its trough at the beginning of 2023.
- Many factors contributed to the falling price of Bitcoin, including generally adverse economic conditions.
- With some of the factors that pushed the price down now reversed, the value of Bitcoin is rising. Only time will tell if the trend continues.
A Short History of Bitcoin
When Bitcoin hit the market in 2009, it was unclear what to expect from an investment perspective. However, that didn’t stop investors who understood the cryptocurrency’s potential from jumping in.
In July 2010, Bitcoin saw its first big jump in price to $0.09. But the inherent volatility of cryptocurrency led to significant swings along the way. When we fast forward to 2020, Bitcoin started climbing to an all-time high of $67,566 in November 2021.
Of course, this extreme spike in value had many investors excited. After all, who wouldn’t want to add such a high-performing asset to their portfolio? Unfortunately for some investors, jumping on the Bitcoin bandwagon in 2021 would become a big mistake.
Bitcoin in 2022
Since that peak of roughly $68,000, Bitcoin has taken a tumble. In mid-November 2022, the cryptocurrency’s value fell to around $16,700. That meant Bitcoin had lost over 70% of its value from a year before.
Bitcoin prices seemed bleak in 2022 compared to the previous year’s highs. But compared to prices from 2019, the asset had still increased in value even at its end-of-2022 low point.
What Pushed Bitcoin Down?
Although Bitcoin’s value experienced such a dramatic tumble in 2022, many seasoned crypto investors were used to the extreme volatility of this asset class. And the reality is that Bitcoin was not the only asset to see shocking volatility amidst 2022’s market conditions.
If you’re not someone who keeps tabs on the general economy, 2022 was a wild ride. Many factors hurting stock investors and everyday households also contributed to the volatility in the crypto market.
One of the major issues facing the economy was high levels of inflation. Inflation is typically caused by a mismatch of supply and demand. Companies will raise prices if demand for goods is unusually high or something interrupts supply chains. When an increase in prices is widespread across the economy, the Federal Reserve steps in.
The Federal Reserve approved a series of aggressive rate hikes across 2022 to curb inflation. Higher interest rates make borrowing more expensive and reduce consumers’ discretionary spending. People save more and often sell off investments, anticipating poor performance from companies.
Cryptocurrency suffered plenty of bad press in 2022 due to the fallout of FTX. The collapse of the crypto exchange led to a loss of over $1 billion in consumer funds. Whenever a failure like this happens, crypto markets tend to suffer as investors are increasingly skeptical of the asset’s stability.
The war between Ukraine and Russia also strained the global political world in 2022. Plus, mid-term elections kept the U.S. political landscape uneasy. These factors contributed to the financial turmoil we saw, which likely caused the negative slide in Bitcoin’s price.
However, historically, there has been an underlying debate about the inherent value of Bitcoin. Some investors are wary of using Bitcoin as a long-term store of value, while others are more confident that another coin, like Ethereum, might surpass Bitcoin’s usefulness at some point.
The Value of Bitcoin
Bitcoin is a digital currency representing an alternative to “normal” fiat currency. A central bank controls fiat money, and it has value because the government decrees it has value. Consumers widely use it, and its value isn’t tied to a specific commodity, like the gold standard.
Despite being located in a digital space, it’s important to remember that Bitcoins are limited in their supply and have an associated cost of production. Some people compare Bitcoins to precious metals because of their limited economic use. For example, you can’t use Bitcoin or physical gold to pay at most retail stores.
However, Bitcoin does have certain advantages over other currencies. Bitcoin is more mobile than paper money or precious metals because it’s not physical. Bitcoin’s underlying technology is decentralized and validated by various independent nodes. This makes Bitcoin particularly resistant to fraud efforts like counterfeiting.
Until people use Bitcoin in more commercial activities, most consumers will likely be skeptical of its value as money. If you’re interested in the debate surrounding Bitcoin’s value, you may be interested in reading more about theories of currency and the switch from the gold standard to fiat currency.
Investors Look Forward to 2023
As with any stock, we can’t be 100% certain why Bitcoin’s value increases or decreases, but there are better and worse theories. In 2022, investors thought of several ways Bitcoin stock could experience a rebound. Some of these possibilities included:
- Lower interest rates: If interest rates started to fall, investors thought it would encourage Bitcoin’s price to rise. That’s because investors would be more willing to invest in riskier assets.
- Reduced threat of a recession: The danger of an economic downturn loomed large in everyone’s minds in 2022. With economic uncertainty baked into every investor decision, opting for a risky asset like Bitcoin likely didn’t seem feasible.
- Changes to the federal regulation: In 2022, the federal government took more interest in regulating the crypto market. Reports were submitted to the President suggesting ways to take advantage of the new technology’s benefits while minimizing risks. Action taken by the federal government could’ve affected the coin’s price.
- Wider acceptance of crypto: Even in 2023, many potential users are wary of the value of crypto. As more people begin to accept crypto as a way to store and transfer value, Bitcoin’s value will continue to climb.
Some major players in the banking industry foresaw a Bitcoin rebound. Earlier in 2022, Deutsche Bank analysts forecasted that Bitcoin would return to a value of $28,000 by the end of the year. The same bank also predicted that Bitcoin could be the digital gold of the 21st century.
Why Did Bitcoin’s Value Go Back Up?
Now that the rebound is finally happening, most analysts’ explanations relate to easing macroeconomic conditions. While the Fed has not started lowering rates, they have slowed. Most experts anticipate just one more rate hike in 2023. This is positive news for the stock market generally, but especially for riskier assets like Bitcoin, which seem like more unnecessary expenses when inflation is high and borrowing is expensive.
Banks have also recently experienced heavy losses on different bond holdings. This has contributed to the Federal Reserve being more moderate with rate hikes lately.
Centralized banking has also recently faced some skepticism with the collapse of Silicon Valley Bank. SVB’s failure was partly caused by the bank’s investments losing value, which triggered depositors to withdraw significant amounts of their money. In the aftermath, some publications argued cryptocurrency and blockchain technology are better suited to running a financial system, which could have contributed to Bitcoin’s rise in price.
On the other hand, many considered SVB the backbone of the tech start-up world, so its failure led some experts to predict investors would move away from crypto assets. Also, Silvergate Capital and Signature Bank, two of the biggest lenders in the crypto space, recently announced closures. This made the rise in Bitcoin’s price somewhat surprising. It suggested recent events did not shake investor confidence so dramatically.
Bitcoin’s rebound has outpaced growth in the tech-heavy Nasdaq, which is only up around 18.5% this quarter. Ethereum and Solana have also seen significant growth so far this year. Where these cryptos will go in the coming months remains to be seen, but with inflation slowly cooling off and interest rates potentially lowering later this year, experts are hopeful.
Investing In Crypto
As a speculative and volatile asset, investors should prepare to lose any money they put into cryptocurrency. We’ve seen many crypto crashes in the last few years, and investors shouldn’t take any investment – especially with crypto – as a guaranteed success.
However, if you are ready to take on some risk, you can earn passive income with your crypto tokens through features like crypto staking, crypto lending, and crypto royalties.
The Bottom Line
Bitcoin might be the most well-known cryptocurrency, but it is still subject to the extensive volatility that investors have come to associate with the crypto markets. The economy suffered in 2022, and it hit cryptocurrencies especially hard. Bitcoin lost considerable value from its high at the end of 2021, hitting a trough near the end of 2022. It has since rebounded, probably because of easing macroeconomic conditions and recent troubles in the centralized banking world.
If you’re an investor building a portfolio of individual cryptocurrencies, keep your eye on current events. Don’t take any investment as a guaranteed success, and learn about ways you can invest smartly and defensively in these ground-breaking new assets.