After the fall of major cryptocurrency exchange FTX and other major players in the year 2022, the reputation and investor sentiment towards the cryptocurrency market fell drastically. This led to a regulatory crackdown on all major cryptocurrency companies. The events were indicating an early demise for the rising crypto wave. But even after the crypto fiasco of 2022, a year later the sentiment is starting to take a shift.
The concept of a decentralized currency hasn’t lost its novelty yet, it was the poor management and regulatory insufficiency/blindness that led to the crash of the crypto bandwagon. The idea and concept in itself still hold promise.
The proof of this phenomenon can be seen in the resurgence of Bitcoin, with its current value of $ 38,000 (at the time of writing) more than twice the value since last November. And the trend continues to point towards an upward climb. There are several reasons which could be attributed to the resurgence of bitcoin in particular.
New-found belief in Decentralized currency network
In the US primarily there have been 5 bank failures in the year 2023 with Silicon Valley Bank witnessing being the largest among them. This downfall was not a result of an overnight incident, it was the result of poor risk management by the executives during a turbulent global economy which primarily resulted in the fall. This made people question the banking system again, and naturally, bitcoin benefited from the sentiment.
This by no means indicates that the people will run to withdraw their deposits from banks, but it does resurface the debate of diversifying from single asset class to cryptos.
The price of bitcoin surged in March in the wake of the crisis, we see that the value of bitcoin increased by close to 40% in just 2 weeks of the SVB crisis and in late April, renewed troubles at First Republic Bank, which reported that it lost over $70 billion in deposits during the previous quarter propelled bitcoin prices higher yet again, showing that investors and savers clearly view it as a port in the storm amidst the current uncertainty.
The rise of Layer 2 ecosystem of Bitcoin
The rise of ordinals – Similar to NFTs, are digital assets inscribed on a satoshi, the lowest denomination of a Bitcoin (BTC) – has challenged the NFT space primarily dominated by the Ethereum network. Along with ordianls the development of layer 2 application on the Bitcoin network has started to gain traction with the development of projects like Stack (Layer 2 companion chain for smart contracts focused on bitcoin (BTC) … allowing for the creation of related financial products Lightning Network) and Lightning Network (decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants) are propelling the future prospects for bitcoin.
The ETF effect
ETFs or exchange-traded funds you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure while helping to diversify your portfolio. There has been strong speculation that ETFs for bitcoin would be approved by the SEC in the year 2024. Bloomberg analysts have expressed a 90% chance of a Bitcoin ETF being approved by January 10, 2024, when the SEC faces a deadline to approve.
The approval of a Bitcoin ETF by the SEC would mean that institutional investors can more easily speculate on the price of Bitcoin. It would also provide more transparency, oversight, and security for Bitcoin investors. Some experts believe that the approval of a Bitcoin ETF could boost the demand and adoption of Bitcoin, leading to higher prices and lower volatility. However, there are also some challenges and risks involved, such as regulatory uncertainty, market manipulation, and potential fraud.
This approval would be a big step in bridging the gap between traditional finance and digital assets realm, the approval would lead to mainstream adoption of crypto assets and potentially lead it to greater heights.
Along with the above major factor, the next bitcoin halving – written in the bitcoin’s mining algorithm to counteract inflation through scarcity, takes place every four years when the reward for bitcoin mining is cut in half – is coming up in the year 2024. Halvings have historically been bullish catalysts for bitcoin. Thus, we anticipate a bright future ahead for bitcoin, despite the shifting economic conditions and the challenges it faces. The improvements in its technology and development have helped it revive from its previous lows.
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