Is Bitcoin on the rise again? Here are 2 things to know before investing

Please fol­low and like us:
Pin Share

For the first time since Novem­ber 7, 2022, flag­ship cryp­tocur­ren­cy, Bit­coin, showed some signs of recov­ery. The cryp­tocur­ren­cy, which trad­ed below $17,000 since the FTX issue, rose above $21,000 on Thurs­day, Jan­u­ary 14, 2023. 

As expect­ed, traders, investors, and enthu­si­asts were excit­ed to see the lit­tle ray of sun­shine even though it is a far cry from the $68,000 price the cryp­tocur­ren­cy crashed from. 

The val­ue of the entire cryp­to mar­ket rose to $990 mil­lion, ris­ing ∼19% from $831 mil­lion in Novem­ber 2022. 

Cryp­to influ­encer and full-time trad­er, Ade­mi, said the rise is like­ly due to a reduced sup­ply of bit­coin and ethereum in the mar­ket. CNBC cor­rob­o­rat­ed Ademi’s stance, say­ing there’s been a huge buyup of the cryp­tocur­ren­cy by large buy­ers known as whales. 

For Ade­mi, the cur­rent rise in the price of bit­coin is a breath of fresh air after a long cryp­to win­ter. While she’s opti­mistic about prices ris­ing fur­ther, she admits there’s no telling if this is the begin­ning of anoth­er bull run or a brief moment of hap­pi­ness for traders like her. 

Things you should know before you invest in crypto
Bit­coin price in the last month. Source: CoinMarketCap

Green strokes on the cryp­to chart could be a sign to get into the mar­ket and make some prof­it. How­ev­er, there’s a need to under­stand why the mar­ket is on the rise and if it is sustainable. 

Here are two things you should know before you invest in crypto

Why is the crypto market on the rise?

Accord­ing to Micheal Ugwu, angel investor CEO of FreeMe Dig­i­tal, bit­coin is on the rise because eco­nom­ic met­rics in the US weren’t as bad as it was expect­ed to be. For exam­ple, the infla­tion rate dropped from 7.10% to 6.5%, mak­ing traders opti­mistic that inter­est rates would drop. 

In the past, Bit­coin was one way to hedge against infla­tion, but it didn’t do that in 2022. The cryp­tocur­ren­cy is behav­ing sim­i­lar to the stock mar­ket play­ing to the tunes of micro and macro­eco­nom­ic factors. 

The rise has also been attrib­uted to the activ­i­ties of whales. These are peo­ple or enti­ties that pur­chase large quan­ti­ties of cryp­tocur­ren­cies enough to move the market. 

Accord­ing to cryp­to data firm Kaiko, trade sizes have gone from an aver­age of $700 to $1,100 on Binance.

Micheal Say­lor, CEO of Micros­trat­e­gy, is a well-known cryp­to whale who bought $45 mil­lion worth of Bit­coin in Decem­ber 2022. When whales sweep up cryp­tocur­ren­cies in large vol­umes, it reduces the sup­ply of cryp­to, which leads to an increase in prices. 

The third rea­son for the hike in the price of bit­coin is the increas­ing min­ing dif­fi­cul­ty. BTC.com data revealed that min­ing dif­fi­cul­ty is now at  37.6 tril­lion, which means it will take 37.6 tril­lion attempts to find a valid bit­coin block and add it to the blockchain.

Met­rics such as these make the cryp­tocur­ren­cy hard­er to mine, increas­ing its scarci­ty and price. 

Will the factors affecting the rise of bitcoin stay the same?

While some eco­nom­ic fac­tors are pan­ning out well for bit­coin, it does­n’t mean things will stay the same. Accord­ing to Ugwu, the eco­nom­ic sit­u­a­tion in the US doesn’t change the macro eco­nom­ic con­di­tions, which will affect cryp­to in the long run.

Accord­ing to the World Bank, the glob­al econ­o­my is pro­ject­ed to grow by 1.7% in 2023, a sharp down­turn in growth. Judg­ing by what hap­pened in 2022, this fig­ure could be worse than the World Bank’s prediction.

On Jan­u­ary 10, 2022, the World Bank warned that “the glob­al econ­o­my is “per­ilous­ly close to falling into recession.”

Even worse, the reces­sion the World Bank envi­sions is going to be broad-based, with every­one every­where in the world expe­ri­enc­ing a sig­nif­i­cant slow­down in their earnings. 

These are the macro eco­nom­ic fac­tors that make Ugwu believe the hike in bit­coin price is going to be short-lived. 

He said, ‘every­thing is pump­ing, and I don’t mind; all I know is that it’s most like­ly short-term.”

While the cryp­to whales might sweep up enough coins to dri­ve up prices, eco­nom­ic con­di­tions across the world do not bode well for the cryp­to mar­ket. His­to­ry, how­ev­er, shows that when it comes to cryp­to, there’s no telling what will happen.

Source link

Please fol­low and like us:
Pin Share

Leave a Reply

Your email address will not be published.