The biggest cryptocurrency surged to its highest level since June as investors looked at good economic signs and ignored a growing SEC crackdown.
Bitcoin soared past $25,000 on Thursday — reaching levels not seen since June 2022.
After rising more than $3,000 in a day, the world's biggest cryptocurrency had gained 50% since the start of the year.
But it then fell back quite steeply, dropping to lows of $23,500.
It wasn't alone. Ether spiked almost 11% between Feb. 15 and 16 — reaching $1,732 before falling back to $1,636.
Economics vs Regulation
"Bitcoin is currently seeing its strongest start of a year ever," Mati Greenspan, founder and CEO of crypto investment advisory firm Quantum Economics, told CoinMarketCap Academy. "A number of factors may be contributing to this including declining inflation and a more dovish Fed, increased global adoption rates, and the upcoming halving event."
Turning to the Securities and Exchange Commission, Greenspan added:
"One thing that's clearly not influencing the price at this time is the SEC and their crusade against digital currencies."
That last one has been a big part of the Crypto Twitter conversation this week, as the SEC on Feb. 9 forced the Kraken exchange to pay a $30 million fine and permanently shutter its staking service, which the agency called an unregistered securities offering.
Then on Wednesday, the SEC proposed a new crypto custody rule that observers believe could make it harder for fund managers to put clients' funds into cryptocurrencies.
Crypto's regulatory problems have been growing even since Sam Bankman-Fried's FTX was allegedly found to have ripped off its customers to the tune of $10 billion, most of which is gone. That massive fraud left crypto in a far weaker position politically, with both sides of the aisle promising a crackdown on Capitol Hill. Crypto prices have slumped deeply since then.
Despite that, blockchain researcher Lookonchain revealed that institutional investors have been returning, pouring $1.6 billion into the crypto market over the past week.
Global Adoption is Growing
While the obvious conclusion looking back at 2022's series of bankruptcies, frauds and general mismanagement of some very big crypto projects is that mainstream buyers would flee, that has not been the case, according to a new study.
In January, Crypto.com's Crypto Market Sizing Report 2022 found that the number of global crypto owners grew steadily from 306 million at the beginning of last year to 425 million in December.
Then there's the next Bitcoin "halving" event scheduled for 2024. That is the periodic 50% reduction in the number of Bitcoin awarded to miners for writing new blocks onto the Bitcoin blockchain — an event that has always seen a substantial price hike as the supply of new Bitcoins drops.
The Bigger Picture
More broadly, the equities market as a whole has been doing well, with investors increasingly betting that the Federal Reserve will be able to drive inflation down without kicking the economy into a recession. That narrative took a hit on Thursday, coinciding with Bitcoin's — and the stock market's — reversal.
Federal Reserve chairman Jerome Powell's comments a week ago that inflation is starting to ease helped calm Wall Street — and crypto. But, as signs on Thursday that the economy is still heating brought suggestions of a higher-than-expected interest rate increase in March, that began to fade.
There are also some narrower explanations, including a short squeeze, in which investors who bet Bitcoin would go down have to buy more to cover those positions. Almost $65 million in short positions were liquidated on Wednesday.
Another is that it's tax-loss harvesting, when investors who sold assets at the end of the year to reduce their tax bills buy them again in the New Year to reestablish their positions.
