Bitcoin has been steadily gaining value over the past couple of weeks after a series of ups and downs early in the year.
The price of Bitcoin popped to above $48,000 earlier this week, its highest price since the start of the year, when the flagship cryptocurrency began a decline that saw its value fall as low as $35,000.
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As of Wednesday afternoon, Bitcoin was resting at $47,000; Ethereum, the second-largest cryptocurrency by market cap, was at about $3,400; Ripple notched $0.86; and Cardano was trading at $1.20. To put that into perspective, Bitcoin has risen by about 20% just in the last two weeks.
There isn’t one singular reason behind the recent gains in the cryptocurrency market. Rather, there are several factors at play. For one, this month, Goldman Sachs became the first major U.S. bank to trade cryptocurrencies over the counter, adding to the institutional legitimacy of digital assets, which could portend more major banks following suit.
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“We are pleased to have executed our first cash-settled cryptocurrency options trade with [crypto merchant bank Galaxy Digital],” said Max Minton, Goldman’s Asia-Pacific head of digital assets, in a statement. “This is an important development in our digital assets capabilities and for the broader evolution of the asset class.”
The world’s largest hedge fund also made waves by announcing that it is jumping into the cryptocurrency sphere. Ray Dalio’s Bridgewater Associates said it plans to back its first crypto fund.
“The ongoing capital splash into the digital currency is a sign that investors do not want to take a back seat in a price movement that could push bitcoin to a height not seen since November 2021,” Alexander Mamasidikov, co-founder of the mobile digital bank MinePlex, told CNBC.
The Russian war in Ukraine initially rattled the crypto realm over concerns that it could spark a global recession due to an explosion in energy costs and potential for other countries to be drawn into the conflict.
Bitcoin is a risk asset class, like speculative stocks, meaning that it suffers during market uncertainty, when investors seek safe assets.
Last year, as consumer prices were quickly rising, some investors saw Bitcoin, and cryptocurrencies more generally, as a possible hedge against inflation. Recently, however, Bitcoin has been more in tune with traditional stocks, which have also seen some gains despite the war. The S&P 500 notched a 7.5% increase over the past three weeks.
Cryptocurrencies also might have been buoyed by news that Russia is considering selling its energy exports for cryptocurrency as the country faces biting sanctions imposed by the United States and its European allies.
Pavel Zavalny, the chairman of Russia’s Duma committee on energy, said during a recent press conference that because of the sanctions, his country would consider allowing “friendly” countries such as Turkey and China to pay for oil and natural gas using Bitcoin.
“We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan. With Turkey, it will be lira and rubles. The set of currencies can be different, and this is normal practice. You can also trade Bitcoins,” Zavalny said.
The growth in the cryptocurrency realm comes even as the Federal Reserve raised its interest rate target by a quarter of a percentage point, the first such move in years, in an effort to curb inflation.
Fed Chairman Jerome Powell has also signaled that the central bank might end up having to move even more aggressively than previously thought to limit inflation, a prospect that could ding economic growth and generally doesn’t bode well for the markets.
Dan Morehead, the CEO and co-chief investment officer of Pantera Capital, said he is bullish about the prospects of cryptocurrency growing while traditional assets like stocks struggle with the interest rate hikes.
“With rates rising, that is mathematically negative for bonds. It also has a negative impact for anything else with discounted cash flows, like equities or real estate,” Morehead told Yahoo Finance.
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Bitcoin’s mixed run since the start of the year follows a tumultuous 2021 for the digital asset.
The flagship cryptocurrency rallied early last year and hit nearly $65,000 in April before retreating from that zenith. Last summer was tough for Bitcoin, which struggled over concerns about regulation, although its value once again exploded near the end of September and rallied to an all-time high of $69,000 in November.
