IntoTheBlock takes a look at Bitcoin's performance in Q1 2023, and key factors leading up to the second quarter of this year.
During the first quarter of 2023, the cryptocurrency market experienced a significant recovery, with Bitcoin and Ether achieving their highest quarterly price increases since the first quarter of 2021. This increase in prices occurred after a period of intense selling activity, which was triggered by the collapse of FTX. Additionally, the market's positive momentum was influenced by an improved macroeconomic outlook for riskier assets and favorable factors that are expected to benefit the crypto industry in the near future.
In this article, we will explore the reasons behind the impressive comeback of cryptocurrencies. We will provide a concise summary of the larger trends that are influencing this market, as well as examine the most pertinent on-chain information. Additionally, we will discuss the key factors that are expected to shape the second quarter of the year.
In the first quarter of 2023, Bitcoin was one of the top-performing assets, outpacing the majority of other investments. In the aftermath of the Silicon Valley controversy and the subsequent response from the Federal Reserve, Ether's price surged by 49% in the first quarter of 2023, surpassing the gains of numerous other cryptocurrencies as well as stocks. However, it still fell short of Bitcoin's performance during the same period.
During the first quarter of the year, there was an escalation in the competition among stablecoins. USDT gained a larger share of the market while Circle faced difficulties due to the banking crisis. Furthermore, USDC experienced its most significant deviation from its peg to the US dollar as a result of the banking crisis.
Bitcoin's increased traction in the market may be a sign of acceptance for the digital asset as a store of value theory. Bitcoin's correlation with gold prices rose from -0.3 at the start of the year to 0.9 by the end of the quarter.
Source: IntoTheBlock’s Capital Markets
The recent rally in Bitcoin's price was fueled by the banking crisis, which is in line with the original purpose behind Bitcoin's creation. Amidst the banking crisis and central bank intervention in the United States and some parts of Europe, Bitcoin's value increased by more than 20%, surpassing the majority of other assets and elevating its correlation to gold. Furthermore, with a $392 billion increase in the Federal Reserve's balance sheet, there is a positive outlook among investors, as many anticipate improved liquidity and lower interest rates in the near future, which could boost Bitcoin's value.
Investors with a long-term outlook are accumulating Bitcoin, as the amount held by "hodlers" (those who hold on to their coins rather than trading them frequently) has reached new record highs.
Source: IntoTheBlock’s Bitcoin Indicators
In 2023, addresses that held onto Bitcoin for over a year increased their holdings by $13.4 billion. Based on past bull markets, it is expected that these addresses are unlikely to sell their holdings until the price of Bitcoin approaches the previous all-time high.
From a network perspective, long-term holders provide stability to the Bitcoin network. They help to reduce volatility by keeping large amounts of Bitcoin off the market, which can otherwise cause price fluctuations. Moreover, this type of activity by hodlers also helps increase demand by withdrawing Bitcoins from the open market. In addition, “hodlers” are also considered smart money investors if analyzed in a historic perspective, they accumulate assets in the bear market to later on sell them during the bull market cycles.
Although the first quarter of the year experienced a recovery in the cryptocurrencies prices and investor sentiment, the future of the market remains uncertain. While the macroeconomic landscape appears to have improved, there are also indications that the cryptocurrency industry has entered a phase of increased scrutiny and opposition, with figures like Elizabeth Warren running anti-crypto campaigns and regulators taking over institutions like Signature Bank.
Apart from the macroeconomic and on-chain factors, there are other significant events to keep in mind as the second quarter of the year begins. Even-though Bitcoin's halving is still a year away, it is possible that many investors will begin to anticipate its effects on the market and buy in advance, given the significance that many attribute to this event as a force behind cryptocurrency cycles. Additionally, the dates for the return of previously hacked Bitcoin worth $17.6 billion from Mt. Gox are quickly approaching.
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