Bitcoin (BTC) price is up 50% this year outperforming stocks and gold

Bitcoin up 50% this year despite the collapse of major crypto-focused banks, beating major stock indices and commodities.

On January 1, bitcoin began trading at just over $16,500. On Wednesday, it hovered around $25,000, thanks to the rally that started on Sunday.

This year’s price increase comes after bitcoin fell 65% in 2022 after several major collapses of projects and hedge funds, bankruptcies, liquidity problems and the failure of FTX, one of the world’s largest cryptocurrency exchanges.

The recent rise has come as a bit of a surprise, due to the closure of Silvergate Capital and Signature Bank, two of the biggest lenders in the crypto industry. And Silicon Valley Bank, considered the backbone of the tech startup industry, also failed.

“Bitcoin’s 50% surge in 2023 is a reflection of the collapse after the collapse of FTX, changes in interest rates and the failure (& revival) of SVB,” Antoni Trenchev, founder of crypto trading platform Nexo, told CNBC.

From its peak of nearly $69,000 in November 2021, bitcoin is still down more than 60%.

Here are some of the main reasons bitcoin is up.

While the collapse of Silvergate, Signature Bank and SVB sent shockwaves through financial markets, bitcoin’s rebound could also be fueled by the failure, according to Vijay Ayyar, vice president of corporate and international development at crypto exchange Luno.

“This past week’s events of the failure of SVB and other banks have also shone a spotlight on the power of a decentralized currency that people can hold and own,” Ayyar said. “Decentralized finance is starting to make sense to more people now.”

Bitcoin is called a decentralized currency because it is not issued by a single entity like a central bank. Instead, it relies on an underlying technology called blockchain and its network is managed by the community.

However, US regulators must step in to guarantee customer deposits in these banks.

Nexo’s Trenchev said the intervention “reminds investors about the structural flaws of the US banking system and the US dollar underpinning it, the reason why we have seen a plane for Bitcoin this week.”

Bitcoin supporters argue that the digital currency is a way for investors to protect themselves from central bank moves, particularly quantitative easing and looser monetary policy, which they say undermines the value of fiat currencies. Proponents point to bitcoin’s limited supply as a key feature as a store of value.

The bank collapse comes after a year of interest rate hikes from the US Federal Reserve. SVB’s problem is that it has to sell assets, especially Treasurys, to maintain its balance sheet while depositors withdraw funds. But selling these assets at a huge loss as rising interest rates have driven down the price of Treasurys.

Some analysts suggest stress in the financial sector could reduce the rate of rate hikes from the Fed, which could help risk assets, such as stocks and bitcoin. This comes despite Fed Chairman Jerome Powell saying days before the bank collapsed that rates would be higher than policymakers anticipated.

“Within a few days, we will move from a hawkish Powell to an environment where economists predict the Fed may not raise rates in March, benefiting Bitcoin,” Trenchev said.

“You have said that the Fed will only stop hiking rates when they break something, and now that something is broken, attention has turned to Bitcoin.”

Bitcoin has rallied 50% this year. In contrast, tech-heavy Nasdaq, which bitcoin has been linked to in the past, is up 12% year to date. At S&P 500 it is up 2.5%.

goldwhich appears to be an asset that investors flock to during market turmoil, is up just over 3% this year.

There aren’t many commodities or stock indices that have beaten bitcoin. In terms of individual stocks, Meta up about 60% in the year to date.

Among the major digital currencies, ether has rallied 42% this year, while solana up more than 100%.