Has Bitcoin risen from the dead?

What can you do with a volatile and speculative asset class that has no proven end use but refuses to do the polite thing and die?

Buy it, maybe?

Even Bitcoin’s biggest skeptics may throw up their hands in surrender as the crypto clock soaks up everything the last turbulent year could throw at it, and starts climbing again.

Those who thought – or hoped – that it would be wiped out by a turbulent 2022 look set to be disappointed again.

If a top-to-bottom crash from $68,000 to $16,000 can’t kill it, what really can?

Incredibly, Bitcoin is now 2023’s best-performing asset class, up 67.59 percent year-to-date and trading at a nine-month high of around $28,000 at the time of writing.

It may be time to admit defeat and accept that Bitcoin, Ethereum, Dogecoin and the rest are here to stay, whether you like it or not.

Bitcoin is still dirty, polluting, volatile and not widely used, unless you are a con artist, gangster or trafficker.

It’s also a money destroying machine for naive traders who figure they can get rich overnight, only to waste their lives glued to an app that destroys their wealth before their delusions.

Last year, the claim that Bitcoin was digital gold destroyed a safe haven in times of economic trouble.

It was sold last year along with technology stocks, bonds, real estate, emerging markets and other key asset classes. The end of the cheap money era, when inflation and interest rates soared, was always going to hurt more speculative assets like this.

However, it could not kill it.

As they say, hope springs eternal and Bitcoin swings back into favor as investors look forward to the US Federal Reserve’s “pivot”, when it signals that the war on inflation has been won and it will start cutting interest rates instead of raising them.

Trading platform eToro has just seen a 78 percent jump in newly opened Bitcoin positions in the past month as investors wake up to the opportunity, says the site’s crypto analyst Simon Peters.

“While inflation remains sticky, the headline numbers are coming down. As a result, we are seeing the opposite of what we saw in 2022, and pressure is easing on crypto.”

Now the collapse of Silicon Valley Bank in the US and the takeover of Credit Suisse in Switzerland have given it another boost.

Crypto was a child of the 2007-2008 global financial crisis, emerging shortly after the world’s central banks began debasing fiat currencies by printing trillions of virtual money through quantitative easing.

But it could come of age in the latest banking meltdown, as traders calculate that the Fed and others will be forced to cut interest rates and deliver more QE to prevent a systemic meltdown.

Loose monetary policy is good for crypto, says Vijay Valecha, market analyst at Century Financial.

“When the Fed tightens, Bitcoin tends to fall. If it eases, crypto may rise.”

Gabriella Kusz, CEO of the Global Digital Asset and Cryptocurrency Association, says investors are moving towards Bitcoin and other forms of crypto “as a reflection of their potential value as a hedge and alternative store of value in such times”.

Lower interest rates will boost all zero-yielding assets, including Bitcoin, gold, silver and US stocks, as investors will see worse returns on cash and bonds, said Fawad Razaqzada, market analyst at City Index and Forex.com.

The price of gold is threatening $2,000 an ounce again after jumping nearly 10 percent in a month, while silver and technology stocks are also up.

Razaqzada says Bitcoin has faced resistance around $28,000, but the Fed’s “dove-high rate hike” of just 0.25 percent at last week’s meeting helped push it over the threshold.

“Investors are starting to price in rate cuts for later this year or early 2024,” says Razaqzada.

Falling interest rate expectations have also hit the US dollar, giving Bitcoin a further boost because it is priced in dollars, making it cheaper for buyers in other currencies.

Crypto investors are known for their short memories, and many will have forgotten that as recently as February this sector was in crisis.

It has had a series of crashes over the past year, starting with the supposedly stable coin Luna in May, which was quickly followed by Singapore-based crypto hedge fund Three Arrows Capital in June, the Celsius Network and Voyager platforms in July, and Bitfront and BlockFi in November.

Losses topped $2 trillion and some thought the Sam Bankman-Fried FTX scandal might be the final nail in the crypto coffin, but it has risen from the dead again.

Cryptocurrencies – in pictures

The calls for effective regulation are getting stronger, especially in Europe and the UK, says Nils Bulling, head of strategic innovation at the digital bank Avaloq.

Some fear that regulation will sink crypto, but he reckons it will boost the sector rather than sink it.

“Investors still seem interested in cryptoassets and currencies. This should be even more true if the investment partners are credible and subject to meaningful regulation,” says Bulling.

Bitcoin is what it has always been, a high-risk bet on volatility. But the longer it survives, the harder it is to ignore.

In fact, its lack of correlation with other asset classes — or anything, really — may ultimately prove to be its strength.

Despite failures, there is a growing argument for having some exposure in a balanced portfolio.

If you’re tempted, the old rules apply, so diversify by investing the majority of your investable wealth in traditional asset classes, such as stocks, bonds, gold, real estate, commodities and cash.

Resist short-term profiteering, overtrading, impulse buying (and selling), extreme hype, crazy fortune tellers, and ever-present crypto scammers. Never borrow money to buy it and never invest what you cannot afford to lose.

If you can do all that, you can find an acceptable role for Bitcoin, even if you don’t understand or like it.

Updated: 28 March 2023 at 05.00