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Updated: Jan 24, 2023, 11:05am
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Despite several catastrophes throughout 2022, Bitcoin and other cryptocurrencies have rebounded strongly into the new year.
After peaking at over $90,000, or $US68,000, in late 2021, BTC fell over 70% to a low of $23,000, or $US16,000, in late 2022. After BTC hit this low, the volatility of BTC’s price in Australian dollar (AUD) terms was minimal throughout December. However, since the beginning of 2023, several pieces of economic data have spurred a rally across digital and traditional asset markets.
While it is yet to be seen whether this upward trend carries enough momentum to continue, it does look like a promising start to the year compared to the previous 12 months. The macroeconomic situation, especially in regards to the US, will continue to affect the price of risk assets such as BTC and the AUD in forex markets.
The year 2022 was a challenging one for cryptocurrency, with over $US1.3 trillion in value lost across the digital asset market. Australian Bitcoin investors were enjoying highs at more than $90,000 per coin in late 2021 before a precipitous drop to $23,000 at the end of 2022. The fact that BTC dropped below the psychological threshold of $US20,000 was alarming to many in the crypto space.
Many investors were caught off-guard by a series of collapses in the industry, including the stablecoin project Terra, Three Arrows Capital, Celsius and crypto exchange FTX, and a deteriorating global economy. Many investors affected directly by the collapses have chosen to step away from the digital asset markets to mourn their losses.
Ben Simpson from Collective Shift, a Crypto Research and Education platform said: “2022 couldn’t have possibly gotten any worse for cryptocurrency markets with the collapse of major crypto exchanges and projects; it was nothing short of a blood bath.”
This year has started exceptionally well for Bitcoin and digital asset markets in general. Positive economic news that suggests slowing inflation has led to Bitcoin posting its best weekly gain in over nine months, surprising many who thought the crypto market was dead. Some market participants have made surprising predictions about what could be another tumultuous year for the cryptocurrency market. Venture Capitalist, Tim Draper, believes that BTC will reach an astonishing $US250,000 by the middle of 2023.
“I think we’re seeing the price of Bitcoin returning to its average now that the worst is behind us,” Simpson says.
“I still expect BTC to trade between $18,000 and $27,000 (US) for 2023, with the macro environment being the main determinant of how the crypto market performs over the coming weeks and months.”
Rising interest rates globally are affecting assets such as stocks and Bitcoin. Additionally, investors are closely monitoring the ongoing situation with FTX, which resulted in the arrest of the company’s founder, Sam Bankman-Fried. The situation will lead to regulators’ enhanced scrutiny of the crypto market, which will spell disaster if implemented incorrectly.
The Australian Government has meanwhile announced its intention to regulate crypto so that traders and investors are afforded some protection.
Related: Crypto News Blog: What is Happening in The World of Crypto?
Over 75% of BTC to fiat currency trade occurs using USD. This is the case for many reasons, namely due to the high level of adoption of cryptocurrency in the US, as well as the fact USD is the global reserve currency, prompting other exchanges in smaller economies to use it to settle trades. The impact of this is that other fiat-BTC pairs can be affected not only by the price of BTC but also the strength of the USD.
Simpson explains: “Even if BTC were to remain stable against the USD, a strengthening USD would cause the price of BTC in AUD terms to go up. This would benefit Aussie BTC holders; however, those wishing to buy BTC with AUD would be disadvantaged.”
The inverse is also true, as a strengthening AUD against USD can lead to a lower price of Bitcoin in AUD terms. However, it’s important to note that the price of Bitcoin is highly volatile and can be affected by a wide range of factors. Hence, it’s difficult to predict how the price of AUD will affect the price of Bitcoin. Additionally, the relationship between the two is not fixed and can change over time, so it’s important to keep an eye on current market conditions to understand the relationship between them.
Related: Is Bitcoin Safe?
In Australia, the exchange rate for the Australian dollar is not fixed but instead fluctuates based on the demand and supply of the currency in the foreign exchange market. Various factors can influence the demand and supply in this market, some with a lasting impact on the Australian dollar’s value and others with more short-term effects.
One profound factor driving the Australian dollar is the interest rate differentials. When other factors remain constant, an increase in interest rates in Australia can lead to a stronger exchange rate. If the interest rates in Australia are higher than those in larger economies, such as the United States, Europe, or Japan, assets that pay interest in Australia, such as government bonds, become more desirable to foreign and domestic investors who may invest abroad.
As foreign investors purchase Australian assets, money flows into the country, increasing demand for the Australian dollar and driving the price up. The inverse is also true, which is currently affecting many currencies around the world against the USD.
The Australian dollar is also influenced by factors such as terms of trade, inflation, commodity prices and international trade flows.
In the near term, economic data shows that many economies globally are still struggling with a rising cost of living, despite central Banks raising interest rates in response. This directly impacts risk assets, such as Bitcoin and stocks, which suffer as investors leave the market to take advantage of stable, low-risk returns from bonds and high-interest savings accounts. A lower inflation rate in major economies globally could signal the end of interest rate increases, which would be positive news for the price of BTC and other digital assets.
Simpson believes macroeconomic factors will be the main determinant for BTC prices in the short term:
“Factors likely to impact the price of BTC in the short term are the upcoming US corporate earnings season, inflation rate and unemployment data, as well as China’s reopening and the war in Ukraine,” he says.
In the long term, as larger economies manage to control inflation and even decrease interest rates, BTC and other risk assets will likely see a strong rebound. This rebound would be driven by investors moving their funds out of bond markets and interest-bearing accounts into risk assets like stocks and cryptocurrencies in an attempt to make a more substantial return. BTC has many factors which could further drive price increases in the long term, including increasing adoption of digital currencies in general, as well as the much anticipated ‘halvening’ in 2024, which has been a catalyst for significant price increases in the past.
Simpson is most excited to be moving on from the previous year of catastrophes and focusing on the industry’s future. He explained that many positive developments fell under the radar over the past year as investors focused on the doom and gloom in the market.
“We could see more infrastructure, use cases, and adoption from this, which could spark a narrative for price growth,” he said.
Crypto’s 2022 failures could also come home to roost in 2023, he adds. The industry will face the consequences of last year’s failures, which should lead to fundamental steps towards greater crypto regulation in Australia. It should be net positive long-term, especially heading into 2024, he notes.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.
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Despite a challenging year in 2022, Bitcoin has remained resilient. The market outlook for the rest of the year is uncertain, and volatility is expected to continue. Long-term investors may see current market conditions, with prices down over 70%, as a good opportunity, but it’s essential to conduct thorough research before investing. Remember that not all cryptocurrencies perform the same, and it is important to consider your investment time horizon, as well as the overall volatility of the sector.
Bitcoin is worth $30,000 AUD at the time of writing, with a previous peak of over $90,000 in late 2021 making it significantly more valuable than AUD.
Each Bitcoin is worth $30,000 at the time of writing or $21,000 US dollars. If you own a part of a Bitcoin, you can find its value in AUD by taking the current BTC market price and multiplying it by the amount of BTC you have.
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