Price of bitcoin continues to outperform stocks and basically any other asset
Zachary Halaschak
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The new year has been a good one for bitcoin investors who have seen monthly returns well in excess of traditional stocks.
The news has been welcome in the limping cryptocurrency world. Bitcoin and other digital assets had a terrible 2022, with the flagship cryptocurrency falling by more than 64% over the course of the year — a year that was marked by several headwinds, including the collapse of cryptocurrency giant FTX and the arrest of its once-vaunted but now-disgraced founder, Sam Bankman-Fried.
But now, at least for the time being, things are turning around.
On New Year’s Day, Bitcoin was trading at about $16,500 and was generally below $17,000 for most of the time after FTX’s dramatic implosion in mid-November. But on Monday, the flagship digital asset was trading at about $23,500 — a gain of more than 42%. Ethereum, the second-largest cryptocurrency, has increased by nearly 39% during that same period.
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Bitcoin briefly rose above $24,000 on Thursday. The last time bitcoin was valued that much was back in August of last year.
“The significant thing about this climb is this is back to the level it was before the FTX implosion for both bitcoin and ethereum,” John Berlau, a senior fellow and director of finance policy at the Competitive Enterprise Institute, recently told the Washington Examiner.
Bitcoin and ethereum are not outliers, either. As the cryptocurrency space has aged, many of the larger digital assets have begun moving more in tandem with one another, and the market as a whole has been responding more like traditional assets. With bitcoin’s rise over the past month or so, other coins have been along for the ride.
Ripple is up 20% from the start of the year, cardano has experienced a whopping 64% increase, and solana has risen by nearly 150%. Even dogecoin, the so-called “meme coin” bolstered by Tesla CEO Elon Musk, has seen its value grow by nearly 30%.
Several factors are at play, but one major influence is the rosier news about the overall macroeconomy. Much of the losses felt by bitcoin and other cryptocurrencies last year was the result of a market pullback, given the uncertainty in the economy.
The Fed jacked up rates all throughout 2022 in order to crush inflation, causing investors in several asset classes to pull back and make less risky bets, but this new year has so far offered a bit of good news for the central bank.
Recent inflation reports have come out better than expected.
The Bureau of Economic Analysis reported that inflation fell to 5% for the year ending in December, as measured by the personal consumption expenditures price index, which is the gauge favored by the Fed — down from a high of 7% in June.
Inflation remains well above the Fed’s 2% target, but that and other reports add to the evidence that prices are trending down and that the recent deceleration is not an aberration but a sign that underlying price pressures are indeed falling.
In November and December, month-to-month inflation in the PCE index was just 0.1%, which equates to an annual rate well below the Fed’s target.
Other reports have similarly shown inflation falling. The consumer price index, which is more familiar to the broader public, shows that overall inflation has declined from above 9% in June to 6.5% in December. The producer price index has shown corresponding declines.
All of those reports give the Fed confidence to begin slowing rates. And this week, Fed officials did slow its tightening. Following a two-day meeting of its monetary policy committee in Washington, the central bank announced Wednesday that it would hike its interest rate target by just a quarter of a percentage point. The move comes after the Fed conducted a half-point hike in December and a barrage of enormous 0.75-point increases before that.
Markets are scared by higher rates, so the move was a breath of fresh air for cryptocurrency traders who might have decided that the Fed was starting to get things under control and invested more money into the risky asset class.
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Traders on Wall Street were feeling the same. The S&P 500’s gains since the start of the year have been more modest than cryptocurrency but have punched in at nearly 10% as of Friday. The tech-heavy Nasdaq composite has been even more explosive, growing some 17% in 2023 alone.
“For the first time, we can now say the Federal Reserve’s rate hikes are closer to the end than the beginning, with the peak in rates no more than [a half of a percentage point] and a meeting or two away. And that’s the worst-case scenario. Buy bonds, buy stocks, buy it all,” said Chris Rupkey, the chief economist at FWDBONDS.