The rise of Bitcoin: why the 2023 rally is different from the previous one

While Bitcoin is experiencing a spectacular rise, the cryptocurrency market in 2023 no longer resembles the market since 2021, when the cryptocurrency queen reached its all-time peak.

All indicators are green for Bitcoin, with the investor “confidence” index known as the “Crypto Fear & Greed Index” at its highest in over a year. This week, the cryptocurrency queen briefly touched $45,000, up 150% year-to-date. The bull market seems to have taken over from the bear market.

A “bear market”, in other words bearish, is when the value of an asset (bonds, stocks, cryptocurrencies, etc.) falls by more than 20%. On the contrary, we talk about a “bull market” when we see an increase in the value of the asset by more than 20%. One of the most famous recent bull phases was when Bitcoin reached its all-time high of $69,000 in November 2021. So the question is: is this 2023 Bitcoin rally different from previous ones?

Excessive speculation in 2021

Although the cryptocurrency market is still young, it is growing at lightning speed. The cryptocurrency market in 2021 differs in many ways from 2023. At that time, cryptocurrencies such as NFTs (non-fungible tokens) were subject to excessive speculation, supported by a favorable macroeconomic context with liquidity injections from central banks that benefited from risk assets. Rightly so, this market has often been described as irrational.

One day it had to calm down. The year 2022 will be a real cataclysm for the ecosystem with numerous scandals such as the collapse of the Terra Luna ecosystem or the FTX crypto exchange. For several months, cryptocurrencies have been floundering, destroying savers and scaring investors. Bitcoin hit its 2022 low in November at $16,000, down 76% from a year earlier.

A more mature market

A few months later, these scandals were deemed necessary to clean up this market. From the United States to Europe, decision makers have used these crypto dramas to advance their plans to regulate the sector. A way to protect investors while making this market more mature.

In 2023, there were relatively few new altcoins “as investors remain wary of the business and few new projects have successfully raised funding,” according to a cryptocurrency source who wishes to remain anonymous. Similarly, we see more limited profit prospects for certain altcoins “as the price cap is already known for many projects,” the source continues.

In certain parts of the world, especially where inflation is skyrocketing, cryptocurrencies can be used as stores of value. On the other hand, Bitcoin is used today to facilitate certain financial transactions, whether it is to pay a person without going through a trusted third party, to make an international transaction on the other side of the world without paying bank fees, or even to pay for a service without having to have a bank account. Likewise, decentralized finance (DeFi) today allows traditional financial operations, such as loans, to be carried out without discrimination in entry.

Traditional finance less cautious

In 2023, the traditional sector is also starting to look at this ecosystem in a different way. Although they still remain cautious, fewer and fewer banks today see bitcoin as an enemy, whether it is JP Morgan or Crédit Agricole, Ledger’s boss Pascal Gauthier confided a few months ago. This new approach to Bitcoin was supported by asset management giant Blackrock, which filed a spot application for a Bitcoin ETF with the US Securities and Exchange Commission (SEC) last June.

In a pro-Bitcoin crusade, Blackrock boss Larry Fink has drawn some of the mainstream sector into his camp, placating both institutional and individual investors.

“If spot ETFs are validated in the United States, more than 10 investment funds will enter bitcoin at the same time, so we risk a parabolic rise in bitcoin. This is not necessarily the case. the case of altcoins, which are ‘securities’ according to the SEC, the purchase of which in the United States is increasingly limited,” the cryptocurrency source continues.

For the latter, the 2023 bull market seems to be more favorable for Bitcoin than other cryptocurrencies in contrast to other bull markets.

Attention

The analysis tends to show that “the current excitement has healthy and lasting foundations that could make this cycle different from others: market cleansing from players considered to be pirates, institutionalization with the arrival of traditional financial players, discussions about progress around ETFs”, points out Alexandre Stachchenko , spokesperson and independent cryptocurrency expert.

“But caution remains in place because some of these elements were already present a few years ago. For example, we talked about institutionalization already in 2017. It is therefore reasonable to stick to the analysis of the basic trend: adoption, security, technical maturity. And these variables are really all green,” suggests another.

Despite this nice rally, Bitcoin still remains below its November 2021 all-time high.

Leave a Comment