Why bitcoin keeps rallying even as stocks and bonds take a hit
The US sharemarket had a rough start to the week following several weeks of gains. It was a similar story in the bond market. And gold did a U-turn after climbing to a record above $US2100 an ounce.
Yet in the digital assets market, bitcoin held firm following a weekend rally that took the oldest token above $US42,000 for the first time in 19 months as frenzied speculation in cryptocurrencies extended its rally to more than 150 per cent this year.
Analysts say BlackRock’s bid, among others, to launch a bitcoin ETF is driving the recent surge in crypto prices. Bloomberg
While traders in traditional markets rethink aggressive pricing of potential US Federal Reserve interest-rate cuts next year, bitcoin-specific catalysts – first and foremost, prospects for the US Securities and Exchange Commission’s to approve exchange traded funds that directly buy the token – have helped the biggest and oldest cryptocurrency break out of a trading range it had spent the previous three weeks.
“The biggest driver behind the surge in bitcoin price is likely the number of applications for spot BTC ETF, which are expected to be approved by the SEC,” Yiannis Giokas, a senior director with Moody’s Analytics, said. “The race is heating up to launch these vehicles with large asset managers getting ready to acquire the underlying asset.”
Bitcoin rose as much as 6.1 per cent overnight to reach $US42,144 earlier and was trading at about $US41,803 in New York. The token was last at these levels in April last year, before the TerraUSD stablecoin collapse that accelerated a $US2 trillion rout in digital assets. It’s on track for the biggest annual gain since 2020.
Smaller tokens such as ether and meme-crowd favourite dogecoin also pushed higher. Bitcoin cash jumped 9 per cent and a gauge of the largest 100 crypto coins added more than 4 per cent. Cryptocurrency-linked companies in the US were able to dodge an otherwise weak day in the sharemarket, with exchange operator Coinbase jumping 5.5 per cent, miner Marathon Digital rising 8.6 per cent and bitcoin proxy MicroStrategy climbing 6.7 per cent.
The crypto industry is awaiting the outcome of applications from the likes of BlackRock to start the first US spot Bitcoin ETFs. Bloomberg Intelligence expects a batch of these products to win regulatory approval by January.
Bitcoin halving
Bitcoin’s revival from last year’s crypto crash has weathered a US crackdown that put Sam Bankman-Fried behind bars for fraud at FTX and handed top crypto exchange Binance and its founder Changpeng Zhao rap sheets and big fines.
Optimists say the push to curb dubious practices and the prospective ETFs signal a maturing crypto industry and the potential for a wider investor base.
Recent enforcement actions “have instilled confidence among investors,” said Su Yen Chia, co-founder of the Asia Crypto Alliance.
A reset in interest rate bets or unexpected snarls for the ETFs could yet derail bitcoin, and some technical indicators suggest the virtual currency’s rally is stretched.
For instance, bitcoin’s weekly relative strength index, a momentum gauge, closed above 75 for the past two weeks. Readings above 70 are viewed as signalling “overbought” conditions.
However, bitcoin in the past decade rose an average 15 per cent over the subsequent month after printing a weekly RSI of more than 75, according to data compiled by Bloomberg.
Bitcoin’s jump this year has outstripped assets such as global stocks and gold. In the derivatives market, open interest recently advanced to landmark levels at the CME Group for bitcoin futures and at the Deribit platform for options on the most high-profile crypto coin.
One boost for sentiment is the so-called bitcoin halving due next year, which will halve the amount of tokens that bitcoin miners receive as a reward for their work. The quadrennial event is part of the process of capping bitcoin supply at 21 million tokens. The coin hit records after each of the last three halvings.
“We could see bitcoin run toward $US50,000 before any major correction,” said Cici Lu McCalman, founder of blockchain adviser Venn Link Partners. She cited the halving and the outlook for US monetary policy as among the reasons why.
Despite the latest leg up, bitcoin and the wider crypto market are still some way below the record highs achieved during the pandemic-era crypto bull run. The largest token peaked at almost $US69,000 in November 2021.
Bloomberg
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