Will Bitcoin Ignite a Cryptocurrency Boom in 2023?

Key Takeaways

• Bitcoin’s Upwards of $30,000 in USD
• Investors have turned to crypto and other assets due to the recent banking collapses.
• Cryptocurrency exchange FTX went bust in November 2022
• Collapse of Silicon Valley Bank
• Increased Interest Rates

Bitcoin Pushes Past $30,000 in USD

Bitcoin, the leading and most valuable cryptocurrency, has caused a stir in the financial world with a sharp rise in its value pushing it above $30,000 (£24,118) for the first time since June 2022. This surge has sparked conversations about another possible cryptocurrency boom, while also rekindling concerns over the potential for widespread manipulation in the market. The increase in Bitcoin benefitted the altcoin market, with almost all top 100 tokens seeing gains.

Economic Factors Which Helped Bitcoin Bounce Back

Silicon Valley Bank - Once the go-to bank for tech companies and start-ups, recently collapsed due to depositor and investor panic caused by plummeting share prices. The Federal Deposit Insurance Corporation (FDIC) intervened and sold SVB to First Citizen Bank, a prestigious family-controlled bank.

Increased Interest Rates - The Bank of England responded to mounting inflation concerns by raising the UK base rate by 0.25 percentage points to 4.25%. Similarly, the Federal Reserve announced a 0.25 percentage point interest rate hike in March 2023, bringing the federal funds rate's target range up from 4.75% to 5% in line with market expectations.

A Brief History About the Cryptocurrency Market 2018/23

The first "crypto winter" in 2018/19 was triggered by the downfall of Celsius, a crypto lending company, and the subsequent collapse of the Terra stablecoin, both of which had a significant impact on the market. To comprehend Bitcoin's current situation, it's crucial to consider the historical context of the cryptocurrency market, specifically the collapse of FTX in November 2022, following Binance's refusal to acquire them. Despite the market's recovery since then, Bitcoin is still trading well below its peak value of almost $69,000 (£51,040) recorded in November 2021 before the collapse of FTX. 

What is a Crypto Winter?

The term "crypto winter" refers to the extended period of time, when the cryptocurrency market experiences a significant decline in value. These result in many crypto projects and startups going bankrupt or shutting down entirely. While the crypto winter period primarily affects the overall market, there were specific instances of companies and projects facing significant challenges during these times.

What are Altcoins?

Altcoins are cryptocurrencies other than Bitcoin that have been created as alternatives to the original cryptocurrency. They aim to improve upon the limitations of Bitcoin, such as slow transaction times, high fees, and lack of scalability. Altcoins often use different mining algorithms or consensus mechanisms to address these issues, and some offer additional features such as privacy and smart contracts.

Popular examples of altcoins include Ethereum, Litecoin, Bitcoin Cash, and Dogecoin. While Bitcoin remains the dominant cryptocurrency, altcoins have gained popularity and market share, with many investors and traders diversifying their portfolios by investing in multiple cryptocurrencies.

Collapse of FTX

In November 2022, the cryptocurrency market experienced a significant slump due to the collapse of FTX, a prominent crypto exchange that processed around $1 billion in transactions each day. The impact of FTX's collapse has had a ripple effect on other crypto exchanges, causing a broader market downturn. The event highlighted the vulnerability of the cryptocurrency market to systemic risk and underscored the need for greater regulatory oversight. The fallout from FTX's collapse has had significant repercussions for traders and investors alike, leading to substantial losses across the board. As the market grapples with the aftermath of the collapse, the industry is left to wonder what the future holds for cryptocurrency exchanges and the broader crypto ecosystem.

Bitcoin as a Potential Safeguard Against Economic Instability

Despite the concerns about manipulation in the market, Bitcoin continues to be seen as a potential safeguard against economic instability. After the recent collapse of Silicon Valley Bank, some crypto enthusiasts turned to Bitcoin as a way to protect against fears that the traditional "fiat" economy might crumble. Bitcoin's dominance in the cryptocurrency world is due to its strong value proposition as a decentralised, immutable and transparent ledger for secure transactions without the need for intermediaries such as banks or financial institutions.

In conclusion, the recent surge in Bitcoin's value and the wider cryptocurrency market has reignited interest in this exciting and transformative technology. Despite concerns regarding the possibility of manipulation in the market, Bitcoin is still seen as a possible solution against economic instability.