Bitcoin has begun 2023 on a positive note, with the price of the world’s largest digital token up roughly 26% since the start of January.

On Saturday, bitcoin’s price rose above $21,000 per coin for the first time since Nov. 7.

It’s still a far cry from the $68,990 record high bitcoin notched in Nov. 2021. But it has given market players cause for some optimism.

The month-to-date rally follows a grim 2022, which saw major insolvencies and scandals in the crypto industry, including the collapse of FTX, and a sharp pullback in the broader market linked to central bank actions.

Analysts say that a number of factors are behind bitcoin’s New Year rise, including an increased probability of interest rates being lowered, as well as purchases by large buyers known as “whales.”

Inflation is cooling down, and economic indicators suggest slowing U.S. economic activity. That’s made traders optimistic the Federal Reserve could reverse, or at least soften, its rate hiking strategy.

Last week, fresh U.S. inflation data showed a modest retreat, with the consumer price index decreasing 0.1% in December on a monthly basis, in line with Dow Jones estimates.

“Bitcoin looks to have recoupled with macro data as investors shrug off the FTX collapse,” James Butterfill, head of research at digital asset management firm CoinShares, told CNBC by email.

“The most important macro data investors are focussing on is the weak services PMI and the trending down of employment and wage data. This coupled with downwards trend in inflation has led to improving confidence, while it comes at a time when valuations for Bitcoin … are close to all time lows. The prospect of looser monetary policy off the back of weaker macro data and low valuations is what has led this rally.”

The Fed lifted borrowing rates seven times in 2022, forcing risky assets such as stocks — and tech stocks, in particular — into a tailspin. In December, the benchmark funds rate increased to 4.25%-4.50%, reaching its highest level since 2007.

Bitcoin has been caught up in the market drama around lending rates, as it is increasingly viewed by investors as a risky asset.

Backers previously talked up bitcoin’s potential as a “hedge” to buy in times of high inflation. But bitcoin failed to achieve that aim in 2022, instead slipping more than 60% as the U.S. and other major economies grappled with higher rates and living costs.

Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank, said in a Jan. 13 note that this was “brewing a hope amongst market participants that the Fed will further slow down on the pace of rate hikes.”

The Fed is likely to keep interest rates high for the time being. However, some market players are hopeful that central banks will start easing the pace of rate rises, or even slash rates. Some economists predict a Fed rate cut could happen as soon as this year.

That’s as the risk of a recession is also playing on central bankers’ minds.

Some two-thirds of chief economists surveyed by the World Economic Forum believe a global recession is likely in 2023, according to research released by the Davos organizer on Monday.

The U.S. dollar has also sagged, with the greenback down 9% against a basket of currencies used by U.S. trade partners in the last three months. The majority of bitcoin trades against USD, making a weaker dollar better for bitcoin.

“We are seeing the dollar put in a top, inflation easing, interest rate hikes slowing down – all pointing to markets getting more risk-on over the next few months,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.

Larger purchasers of digital coins known as “whales” may be leading the latest rally in bitcoin, according to Kaiko.

The crypto data firm said in a series of tweets Monday that trade sizes had climbed from an average of $700 on Jan. 8 to $1,100 today on the crypto exchange Binance, indicating renewed confidence in the market by whales.

Whales are investors who’ve hoarded large piles of bitcoin. Some are individuals, like MicroStrategy CEO Michael Saylor and Silicon Valley investor Tim Draper. Others are entities such as market makers, which act as the middlemen in trades between buyers and sellers.

Skeptics of digital currencies say this makes the market prone to manipulation by a select few investors with large piles of tokens. The wealthiest 97 bitcoin wallet addresses account for 14.15% of the total supply, according to fintech firm River Financial.

In December, Carol Alexander, a professor at the University of Sussex, told CNBC that bitcoin could see a “managed bull market” in 2023 in which bitcoin travels north of $30,000 in the first quarter, and to $50,000 in the second half. Her reasoning was that with trading volumes evaporating, and the level of fear in the market extremely high, whales would then step in to prop up the market.

There are other factors at play, as well.

Several bitcoin miners have been flushed out by the drop in prices. Bitcoin miners, who use power-intensive machines to verify transactions and mint new tokens, have been squeezed by the slump in prices and rising energy costs.

That’s historically a good sign for bitcoin, according to Ayyar.

These actors accumulate massive piles of digital currency, making them some of the biggest sellers in the market. With miners offloading their holdings to pay off debts, that removes much of the remaining selling pressure on bitcoin.

More recently, however, bitcoin’s network “difficulty” has been increasing, meaning more computing power is being deployed to unleash new tokens into circulation.

Mining difficulty reached a record 37.6 trillion on Sunday, according to BTC.com data, meaning that, on average, it would take 37.6 trillion hashes, or attempts, to find a valid bitcoin block and add it to the blockchain.

“Bitcoin mining difficulty is a measure of how difficult it is to create the next block of transactions,” said Marcus Sotiriou, market analyst at digital asset broker GlobalBlock, told CNBC.

“Bitcoin mining difficulty fell 3.6% before the last update, after a winter storm led some miners to shut down. However, now miners appear to have come back online, with new and more efficient machines.”

Meanwhile, events further down the crypto calendar could give traders cause for some New Year cheer. It is still a year away, but the so-called bitcoin “halving” is an event that often leads to excitement for crypto investors.

The halving, where bitcoin rewards to miners are cut in half, is viewed by some investors as positive for bitcoin’s price as it squeezes supply.

“There are signs this could be the beginning of a new cycle with Bitcoin, as it typically does around 15-18 months before halving,” Ayyar told CNBC. 

The next halving is slated to happen sometime between March and May of 2024.

However, Ayyar cautioned, “At this point, we’re in overbought territory with Bitcoin and hence could definitely see a dip.” Prices could go for a dip if bitcoin closes below $18,000 in the next few days, he added.