By Landon Manning
The price of bitcoin has been steadily on the mend since the beginning of the year and, in light of the Federal Reserve’s raising of interest rates, a new dynamic between BTC and traditional financial markets could be emerging.
The valuation of bitcoin suffered intense drops and a long stagnant period throughout 2022, likely caused in large part by a cascading series of cryptocurrency exchange failures, but certainly also compounded by growing difficulties in the larger world economy. Rising costs, inflation, falling wages and more helped keep general interest in Bitcoin relatively low, but the new year has seen growth. At the time of writing, the value of bitcoin is around $22,000, a full $6,000 higher than it was last November.
Bitcoin was fully intended, from the ground up, to be a paradigm for a new and decentralized model of economic life. This means that Bitcoin is not only a means for individuals to carry out transactions without any sort of intermediaries except the rules of the protocol, but also that it is leaderless and fully decoupled from various governments and financial institutions.
But, despite the capacity for Bitcoiners to interact without any third-party intermediaries, the fact remains that a mass movement such as Bitcoin will still be driven by people whose economic lives are very much entangled with legacy institutions. In other words, although the basic framework of Bitcoin remains unshackled, the bitcoin price is frequently quite correlated with traditional financial markets and the world economy at large. Historically, the same trends that impact the stock market, often caused by the policies of this or that central bank, frequently impact bitcoin investment as well.
New data, however, is suggesting that this correlation may be dissolving. The trend was noticed in the waning months of 2022, as bitcoin continued a latency period despite rallying action in the stock market. Now, in 2023, the Fed has been raising interest rates with a purported goal of cooling consumer spending and reducing the prices of goods. And yet, bitcoin has been rallying harder than it has in several months.
If this trend holds or even grows, it will have immense consequences for the entire world of crypto and make an even more powerful argument for investors to enter the Bitcoin sphere. Despite its chronic instability, bitcoin has frequently been touted as a powerful store of value against fluctuating currencies, more broadly accessible than previous standards like gold and real estate. If bitcoin truly begins to consistently perform at a higher level despite setbacks in the world economy, it could become even more enticing as a long-term investment.
Although no one can know for certain how either the U.S. economy or the decentralized economy of bitcoin will grow in 2023, it is nevertheless always a smart idea to keep a diversified portfolio. In any event, all of these signals in the market remind us that Bitcoin continues to have staying power, and a very bright future ahead.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.