Bitcoin continues to surge toward the $40,000 level that it hasn't seen since the May 2022 blowup of supposed "stablecoin" TerraUSD. A number of factors are propelling the Bitcoin price, including possible movement toward Securities and Exchange Commission approval of a Bitcoin ETF. But the biggest may be the seemingly inevitable Federal Reserve rate cuts that markets are now betting will start by March.
Bitcoin Price
Bitcoin's price climbed 1.8% in the 24 hours through late Saturday afternoon, to around $39,552, according to CoinDesk. Coinbase Global, which operates a crypto trading platform, rose 7.25% in Friday stock market action. It continues to move higher following a Nov. 24 breakout.
CNBC reported late Thursday that the SEC had met with Grayscale, BlackRock and Nasdaq this week over their applications to launch a Bitcoin exchange-traded fund. Such a fund would allow investors to bet on Bitcoin's price without having to directly purchase and store the cryptocurrency. That could open the door to a much wider investing audience.
Earlier on Thursday, the Fed's primary inflation gauge, the PCE price index, showed both overall and core inflation running at a 2.5% annual rate over the six-month period through October.
The soft data continued on Friday as the Institute for Supply Management's manufacturing survey index remained stuck at 46.7, staying in contractionary territory below 50. Even worse, the ISM employment subindex slid to 45.8. The upshot: Next Friday's November employment report could show a loss of factory jobs.
Fed Rate Cuts Priced In
With inflation now falling rapidly, the current 5.25% to 5.5% federal funds rate makes U.S. monetary policy the most restrictive it's been in 25 years, New York Fed President John Williams said on Thursday. Growing signs of an economic slowdown suggest that's unsustainable. Markets are pricing in a likelihood of five quarter-point rate cuts by the end of 2024, according to CME Group's FedWatch tool.
The lower interest-rate outlook is reversing some of the U.S. dollar's appreciation vs. global currencies. The U.S. dollar index has fallen 3% against other advanced-economy currencies since the Fed's Nov. 1 meeting. That eases inflation and borrowing constraints globally, especially for emerging market economies.
Bullish Bitcoin sentiment may have gotten a lift from a new blog post by cryptocurrency trader Arthur Hayes. He wrote that the softening dollar will allow China to "engage in a massive round of stimulus" with less concern that the yuan will weaken vs. the dollar.
"Given that the dollar is the world's largest funding currency, if the price of credit falls, all fixed supply assets like Bitcoin and gold will rise in dollar fiat price terms," Hayes wrote.
Bitcoin In Sync With The Nasdaq
The Fed's reversal of unprecedented pandemic-era monetary stimulus began in November 2021, just as Bitcoin and the Nasdaq were reaching all time peaks. The collapse of TerraUSD wiped out $40 billion in market value. It also accelerated a deleveraging wave that exposed epic fraud and unraveled absurdly risky business models built on only bullish cryptocurrency scenarios.
Bitcoin's revival has largely tracked that of the Nasdaq, which has surged 39% from its Dec. 28 bear-market closing low. The Bitcoin price, which got as high as $68,990 in November 2021, settled around $16,000 late last year, before taking off at the start of 2023. However, Bitcoin's explosive 47% move since mid-October has come as the Nasdaq has climbed about 7%.
Stablecoins Stabilize
Close watchers of Bitcoin point out some other factors contributing to recent strength. A Forbes article highlighted a 3.4% increase in stablecoins, the first monthly increase since TerraUSD collapsed in May 2022. That collapse led to a nearly 40% plunge in stablecoin market capitalization. The change in the trend may be significant because cryptocurrency traders use stablecoins to buy cryptocurrency using leverage.
One further short-term driver could be a $1 billion decline in Bitcoin stored at exchanges. That might signal confidence in holding Bitcoin for the long term.
Grayscale successfully sued the SEC, challenging its decision to block Grayscale's proposed Bitcoin ETF. While there's no certainty of approval this time around, speculation is building.
