Bitcoin is up because of global economic uncertainty
The volatility traditionally associated with cryptocurrencies has been on full display over the past few weeks. Bitcoin, the largest cryptocurrency, is up about 33 percent since Jan. 24 and last traded at $43,850, recovering from a plunge that halved from an all-time high hit in November. Its main rival ethereum has rallied about 45% since Jan. 24 to around $3,200, after also falling nearly 56% from an all-time high of $4,868 hit in November.
The news has clearly shaken consumer confidence in the value of the most famous cryptocurrency, but cryptocurrency owners are more optimistic. They predict that the price of Bitcoin will rise slightly from its current value (around $15,600 at press time) to around $17,500. This forecast is the lowest we have recorded among cryptocurrency owners: almost $12,800 lower than in October and about $32,300 lower than their forecast at the beginning of the year.
Bitcoin has shown tremendous growth in value and popularity. Twelve years after it was created in 2008 by the pseudonymous programmer Satoshi Nakamoto, the price of bitcoin has soared to unprecedented heights. A key feature of the cryptocurrency market is that currency prices fluctuate based on people's perceptions and opinions. Many investors are attracted to Bitcoin due to its high liquidity, low transaction costs, and ease of transacting via the Internet (Zheng et al., 2019). However, the price of Bitcoin is affected by market sentiment (Eom et al., 2019). Sentiment — investors’ thoughts, feelings, and emotions about an asset — affects BTC market prices. There is a correlation between the price of Bitcoin and changes in how much people search (Karalevicius et al., 2018). Wołk (2019) also supports this argument and goes on to explain that cryptocurrency prices are largely determined by sentiment on social media and web search analysis tools such as Google Trends.
Bitcoin is up because investors are optimistic about the future
Despite the decline in interest and confidence in cryptocurrencies, long-term investors are not losing money and continue to be optimistic about the future of Bitcoin. The percentage of U.S. dollar assets held in BTC that have not moved in the past six months hit a multi-year low. In previous Bitcoin cycles, such extreme lows were marked by the formation of major cryptocurrency bottoms, and in my opinion, a similar situation will repeat itself in 2022-2023.
Edward Moya, senior market analyst at brokerage Oanda, said, "Wall Street is enjoying positive risk appetite, which is good news for cryptocurrencies." Expectations of tightening have eased and things are looking better."
Another reason for the rise in the price of Bitcoin is its growing acceptance as a payment method. PayPal (PYPL) recently announced that it will soon allow its users and merchants to buy, sell, hold and accept Bitcoin and other cryptocurrencies as payment.