According to one Report Most recently from NYDIG, Bitcoin had an amazing first quarter, with a 71.9% price increase. The upbeat move outpaces all other asset classes even as U.S. regulators are looking to tighten activity in the crypto space. Several factors have contributed to Bitcoin’s impressive performance despite regulatory efforts.
First, the ongoing banking crisis hit regional banks across the United States. While bitcoin’s usefulness in high-stakes market scenarios and inflationary environments is still hotly debated, it’s clear that the king of cryptocurrencies is shining brightly at a time when trust in the traditional banking system is being undermined.
#bitcoinCorrelation with U.S. stocks falls, surges 71.9% in first quarter https://t.co/0KL6EWfsLg
— Kyptos (@azcoinnews) April 10, 2023
Moreover, Bitcoin’s strong performance is not unique. Stocks, bonds, gold and commodities all rallied, but none could keep pace with Bitcoin’s rise. This could be due to a more favorable macroeconomic backdrop, with lower inflation expectations and interest rates reversing all headwinds for 2022.
Second, the cyclical nature of bitcoin prices is also a factor. The Bitcoin reward halving is still more than a year away, and the cycle following the 2022 crash is often the start of another cyclical bull market.
The report noted that this was Bitcoin’s fourth-best first quarter ever, which historical analysis suggests is typically a bullish sign for the rest of the year. Bitcoin has never had a year off from a positive first quarter, with some of the best first quarters (such as 2011 and 2013) posting massive gains throughout the year. While it is unlikely that Bitcoin will ever reach this level of profitability again, a historically strong first quarter has resulted in better returns.
The report also looked at Bitcoin’s correlation with other assets. Bitcoin’s correlation with “risk-on” assets such as U.S. stocks has been falling steadily this quarter, while its correlation with gold has risen in recent weeks. Bitcoin’s correlation with the U.S. dollar remains negative, but has risen during the quarter. However, Bitcoin’s average correlation with other asset classes remains low in the long run.
The report shows that Bitcoin’s increased correlation is a new trend brought about by the financial and monetary stimulus measures in response to the Covid-19 crisis. As Bitcoin continues to be included in traditional portfolios, this means that correlations will increase, but will remain low as the asset is primarily driven by specific factors.
The report also examines some of the events that impacted the quarter. In January, Ordinals launched a project that allows users to create native NFTs on the Bitcoin blockchain. Although the growth rate of ordinal inscriptions has slowed down since the initial boom, the number of inscriptions has grown to one million. Meanwhile, Yuga Labs (Bored Apes Yacht Club, Crypto Punks), one of the leading NFT generators in the entire digital asset scene, launched the Twelvefold collection using Ordinals. The incident sparked important philosophical discussions about the use of Bitcoin.
Financial purists are in favor of using Bitcoin to transfer and store value, while the broader view is in favor of Bitcoin as a data storage layer. Either way, the net beneficiary of the inscription increase is the miners, as they pay transaction fees based on the amount of data transferred.
Finally, the report points to the banking crisis as an opportunity for Bitcoin. In the traditional banking industry, many banks have been taken over, closed down or sold out in an emergency. The liquidity problem has become prominent. In the environment of rising interest rates, assets continue to lose money, and the deposit base is concentrated and loose.
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according to Kyptos