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November 1, 2023

Bitcoin's Remarkable Rebound, Unearthing the Factors Behind its 2023 Surge

BTC took a heart-stopping plunge, plummeting to levels not seen since late 2020, dancing at just under $15,500

It's been just under a year since the cryptocurrency world witnessed turmoil, as panic-stricken investors hastily parted with their Bitcoin holdings in the wake of the FTX cryptocurrency exchange's collapse. The year 2022 saw the price of Bitcoin plummet to its lowest point since late 2020, teetering at just under $15,500. This marked a significant 77% pullback from the record-breaking highs of November 2021 when Bitcoin surged to $69,000.

While the FTX collapse triggered Bitcoin's descent, the primary catalyst for the bearish trend in 2022 was an aggressive interest rate hike initiated by the US Federal Reserve. This caught the broader market off guard and set the stage for a challenging year.

However, a remarkable transformation occurred in late 2022, breathing new life into Bitcoin.

As of the present moment, Bitcoin hovers just below $35,000, marking an impressive 120% surge from its 2022 lows. The cryptocurrency has managed to trim down its pullback from the 2021 highs to approximately 50%. This resurgence is particularly striking considering that the macroeconomic landscape hasn't seen significant improvement in the current year.

Bitcoin's remarkable rebound in 2023 can be attributed to several key factors. One prominent reason is the phenomenon of mean reversion, as various metrics indicated that the market had become historically oversold in the aftermath of the FTX implosion. For instance, Bitcoin's Market Value Realized Value (MVRV) Ratio briefly fell below 0.8 in November, a rarity in the cryptocurrency's history. This signaled a historic buying opportunity. The MVRV ratio compares the current Bitcoin price to its realized price, a proxy for the average price paid by investors for each coin.

The significant 40% increase in Bitcoin's price in January was primarily the result of high-conviction long-term Bitcoin enthusiasts seizing the opportunity to buy during the market dip.

This initial push was further bolstered by two additional narratives. Firstly, Bitcoin witnessed a sudden surge in March, coinciding with fears of a potential US banking crisis. This surge, along with rising gold and bond prices, reinforced the idea that Bitcoin serves as a safe haven in the face of financial system vulnerabilities and is not a risky asset.

More recently, Bitcoin has demonstrated its role as a safe haven again, gaining ground while US stocks and bonds face simultaneous challenges amid concerns about the robust US economy and geopolitical tensions.

Secondly, optimism surrounding institutional adoption has returned to support the market, particularly since BlackRock and several major Wall Street asset managers applied to establish spot Bitcoin ETFs in June. The anticipation of approvals later in the year or early 2023 has contributed to the latest surge in Bitcoin's price.

Historically, during Bitcoin bull markets, the MVRV ratio has reached extreme levels above 3.2. If Bitcoin's realized price were to undergo a similar 5x increase, as it has in previous bull markets, reaching around $100,000, an MVRV ratio of 3.2 would imply a Bitcoin price exceeding $320,000, nearly ten times its current value.

Bitcoin's extraordinary recovery in 2023, despite a largely unchanged macroeconomic landscape, can be attributed to the confluence of mean reversion, its status as a safe haven asset, and the resurgence of institutional interest. As Bitcoin enthusiasts look ahead, there's an air of anticipation regarding the potential for further gains, as historical patterns suggest the cryptocurrency may have room to grow.

Neil Hodgson Coyle
Neil Hodgson-Coyle
Editorial chief at TechNews180
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