Bitcoin (^BTCUSD) surged up more than +6% today to a 9-month high. Since tumbling to a 2-year low in late November, Bitcoin has rallied more than +73%. Bitcoin is up more than +25% this week, and other cryptocurrencies, such as Ether (^ETHUSD), are also up sharply. The collapse of three regional U.S. banks over the past week and liquidity woes at Credit Suisse Group AG are boosting expectations of an end to monetary tightening from global central banks that helped pummel cryptocurrencies in 2022.
The turmoil in the U.S. and European banking system has boosted demand for cryptocurrencies as an alternative to fiat currencies. An analyst at Messari said, “the current turbulence within the U.S. banking sector, potentially leading to a more relaxed Federal Reserve stance, reinforces Bitcoin’s dual role as a hedge against traditional finance and a credible risk asset.”
Financial markets are pricing an end to Fed rate hikes later this year with the possibility that the Fed could begin cutting interest rates. CoinDesk said, “any sign of interest-rate cuts should push funds to riskier assets, which is likely enough to bring more institutional funds into the crypto market, regardless of whether macro traders understand or believe in the longer-term Bitcoin investment thesis.”
However, the crypto markets are still contending with attempts by U.S. regulators to clamp down on cryptocurrencies in the wake of the collapse of the FTX crypto exchange. The U.S. Securities and Exchange Commission is contending that most digital assets are securities, a designation that requires greater investor protection and may make some crypto tokens harder to trade. Matrixport said the attempts by regulators to clamp down on digital assets had prompted some investors to move out of stablecoins and into Bitcoin, the largest digital asset.
CoinGecko said Bitcoin now accounts for 43% of the overall crypto market value, the highest proportion since June 2022. Bitcoin is the least volatile of the non-stablecoin crypto assets, and in times of high volatility, investors tend to prefer Bitcoin instead of smaller higher-risk cryptocurrencies. If turmoil in global financial markets worsens, expect more calls for the world’s central banks to stop raising interest rates and begin cutting them, which could fuel additional gains in Bitcoin.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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