Bitcoin rallied over the weekend and is now trading above $20,000 for the first time since the spectacular collapse of Sam Bankman-Fried’s FTX. This means it’s now profitable again for mining companies to run the expensive hardware necessary to mine the Bitcoin network. It also means that your average Bitcoin hodler, if they sold their stash now, would no longer be selling for a loss.
Glassnode estimates that Bitcoin's "realized price," the average price that current investors paid for BTC, is at around $19,700. The average price that Bitcoin traded for in the last 155 days is $18,000, says Glassnode. In either case, Bitcoin is now trading well above that mark, today changing hands at more than $21,000.
The rally means miners are also getting some relief, notes the analytics firm. Bitcoin mining is the use of computational power to solve the complex math equations necessary to create new Bitcoin. According to Glassnode, it currently costs roughly $18,800 to mine Bitcoin. With Bitcoin now trading above $20,000, that means the average mining firm can once again operate while actually making a profit.
The price of Bitcoin jumped last week following news that inflation rates in the U.S. have started to cool. The Federal Reserve throughout 2022 has been raising its benchmark rate to quell record-high inflation in the United States, bringing down risk assets across the board, including both stocks and Bitcoin.
The Fed last raised interest rates in December by 50 basis points—a more modest increase compared to several 75 basis-point raises throughout the year. The Bureau of Labor and Statistics indicated in its Consumer Price Index report Thursday that inflation measured in December dipped to 6.5%, down from 7.1% measured in November. This appears to have helped investors gain confidence that the Fed could be on course to soften its hawkish monetary policy.
Rate hikes throughout 2022 contributed to a brutal bear market in crypto. And as the price of Bitcoin plummeted, numerous overleveraged companies went belly-up, including Celsius, Voyager, and Three Arrows Capital.
The biggest collapse by far came in November when the once-dominant FTX imploded following a bank run on the exchange. The liquidity crunch forced the company to admit that customer funds on the platform were not fully backed, freeze withdrawals, and eventually file for bankruptcy.
Now, with FTX founder Bankman-Fried charged with eight financial crimes and awaiting trial, and the Fed taking its foot off the gas, crypto investors might again have reason to feel optimistic.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.