Jun 23, 2023 - Economy

Bitcoin is having a nice week; exploring some reasons why

Illustration of gold coins stacked upwards over binary code

Illustration: Sarah Grillo/Axios

Bitcoin price is having a very nice week, holding steady around $30,000.

Why it matters: Bitcoin is the bellwether of the industry. It shows the direction of every other crypto asset's price. One day this may no longer be true, but for now, it still is.

By the numbers: From Monday to Friday afternoon, BTC price went up roughly $4,400, or about 17%.

  • Bitcoin Dominance (BTC.D — measuring how much of the total market cap of all cryptocurrencies is bitcoin) has nudged up, from 49.5% on Monday to 51.6% Friday morning.
  • ETHBTC, the measure of the two most important cryptocurrencies, bitcoin and eth, relative to each other, is falling but only a little — from 0.065 on Monday to 0.062 on Tuesday. This means that the second most important cryptocurrency is losing ground relative to the most important.

This is classic bear market. There's some portion of the crypto industry that is very unlikely to exit entirely, but what it will do is retreat to safer cryptos, like bitcoin.

  • That's what we're seeing in these numbers. Funds moving from the rest of the market to the original cryptocurrency, betting it will lead the whole market up when a real rally comes.

Yes, but: This week's rally could easily fail to stick. A 10% move is just another day at the office for bitcoin.

What's going on? The most immediate explanation is all the things that Crystal wrote about yesterday (big names opening an exchange, many ETFs, BlackRock). Ironically, as much as cryptocurrency was invented to disrupt finance as we know it, nothing excites the market like the credibility that household-name financial players bring.

But that's not all. All year, there have been some developments supporting Bitcoin and favoring it in the crypto market. For example, macro forces are crucial for cryptocurrency markets.

  • As a risk asset, big money does not stick around when there's uncertainty, but recently the Fed took a breather with interest rate hikes. In a more predictable world, some risk-hungry investors will dabble in bitcoin.

It has also been the busiest year ever for the actual bitcoin network, in terms of transaction volume. This isn't due to investors buying bitcoin so much as it's due to people playing around with new uses of the Bitcoin network, using Ordinals technology.

  • Bitcoin is making NFTs and alt-coins. The edgiest crypto investors are having a lot of fun with it. It's sent network activity skyrocketing.

The bottom line: Two numbers are crucial in this market: $19,800 and $69,000. That is, the highs from the 2017 and 2021 booms.

  • As long as BTC price stays well above $19,800, the industry has made progress that's stuck (remember, that boom was considered wild and speculative, too).
  • But as long as BTC is below the 2021 number, it hasn't achieved a fresh growth spurt.
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