The price of Bitcoin rose above $30,000 on Tuesday for the first time since June, having gained more than 80 percent so far this year, due in part to the banking crisis and investors betting that the Federal Reserve will soon pause interest rate increases.
The latest Bitcoin rally appears to be partly tied to the Fed monetary policy, Bernhard Warner wrote for the New York Times’s DealBook.
Crypto asset prices tanked a year ago when the central bank began raising rates. Year to date, Bitcoin has rallied more than 80 percent, outperforming the Nasdaq 100 index of the biggest tech stocks, which gained about 20 percent.
Despite what investors say — Jeffrey “Bond Market King” Gundlach made the case for bonds, saying “investors should look at what the market says over what the Fed says” when it comes to trying to figure out what interest rates will do — the Fed has given no indication that it intends to slow down rate hikes.
On the contrary, the market is getting it wrong by predicting rate cuts this year, Federal Reserve Chairman Jerome Powell said in March after announcing a new interest rate hike of 0.25 percent.
The ninth rate hike in a year and the first after two weeks of banking turmoil brought the benchmark funds rate to a range of 4.75-to-5 percent. The banking crisis raised expectations that the central bank would ease up on rate hikes to reduce banking stress.
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On March 10, the biggest U.S. bank failure since the financial crisis happened at Silicon Valley Bank, a major lender to the tech industry, following a run on the bank. Days later, Signature Bank was shut down and First Republic Bank was rescued from bankruptcy while Credit Suisse avoided collapse by being taken over by UBS.
Amid fears of contagion and a more widespread banking crisis, massive amounts of emergency money from central banks, the lenders of last resort, helped save the day.
The central bank said in March it anticipates slow economic growth, a gradual decline in inflation and a rebalancing of supply and demand in the labor market.
“In that most likely case, if that happens, participants don’t see rate cuts this year,” Powell said, adding that uncertainty lies ahead for the economy but rate cuts are not currently in the central bank’s “baseline expectation.”
The interest rate-setting Federal Open Market Committee strongly considered pausing rate hikes in light of the crisis of collapsing banks that started March 10, but stayed the course because data on inflation and the labor market was already coming in stronger than expected, Powell said at a news conference.
Traders are watching for the March 12 consumer price index number, which “could come in at a level that gives the Fed reason to think about pausing raising rates in the next meeting, thereby giving a boost to assets like bitcoin,” said James Lavish, managing partner at the Bitcoin Opportunity Fund.
Now that bitcoin topped $30,000, it will likely move into the mid- to high-30s if it pushes through with conviction and would “force short speculators to cover and buy instead,” Lavish added, according to CNBC. “Some investors are trying to get positioned ahead of that.”
Reuters reported that crypto investment products attracted $57 million in inflows last week, most of it focused on Bitcoin, digital asset manager CoinShares said on Monday. This brings digital asset flows back into positive territory for the year, according to the report.
“The market has done a great job at culling all leveraged participants in the past 18 months,” said Matthew Dibb, chief investment officer at Astronaut Capital, a Singapore-based crypto asset manager. “If (Bitcoin) can survive the week over $30,000, we are going higher.”