The Crypto Rally is back. CPI pushed Bitcoin to its highest level since last June.

[ad_1]

Text size

Bitcoin prices have returned to levels not seen in about a month – a bullish sign for cryptos. The time of dreams

The rally in Bitcoin and other cryptocurrencies is back, with digital assets hitting their highest levels since last summer despite widespread fears in financial markets in recent days.

The price of Bitcoin has risen 16% in the past 24 hours to over $26,200, levels the largest digital asset has not seen since the crypto crash accelerated last June. Bitcoin peaked above $25,000 last month from around $16,500 in early January, but stalled in March and fell below the $20,000 level last week amid concerns over crypto-banks and the regulatory framework. The latest action suggests Bitcoin is back on a bullish streak.

“A decisive break above $25,200 would be long-term bullish,” said Katie Stockton, managing partner at technical research firm Fairlead Strategies.

There are complex, and perhaps contradictory, dynamics in the crypto markets.

In the past week alone, Silvergate Capital (ticker: SI) and Signature Bank (SBNY) – the most influential US bankers in the crypto industry – failed, a headwind that bodes ill for liquidity of the market as well as sentiment for digital assets among regulators. Then, amid Silicon Valley Bank’s banking troubles, traders faced deep fears about how deposits with that lender could threaten the viability of a key stablecoin.

And yet, Bitcoin managed to jump higher in the face of these headwinds.

Some traders point to a guiding principle of Bitcoin’s founding, which is that it is a safe store of value in the face of common financial difficulties. “This function of bitcoin as capital preservation was recalled over the weekend,” noted Alex Kuptsikevich, analyst at broker FxPro. But that doesn’t tell the whole picture.

It is more likely that the crypto surge is due to the nature of the correlation between digital assets and stocks, even though the Dow Jones Industrial Average and S&P 500 largely weakened on Monday while Bitcoin soared.

Cryptos and equities remain very sensitive to the macroeconomic backdrop of rising interest rates. And the crisis in US banks – largely due to losses on bond holdings following higher rates – has prompted questions about expectations for future monetary policy.

In a week, markets have gone from expecting the Federal Reserve to step up its interest rate hike by 50 basis points at its meeting next week to believing that there is a good chance that the central bank is keeping rates unchanged due to the bank’s woes. (A basis point is 1/100th of a percentage point.)

This is a major tailwind for cryptos, which are even more rate sensitive than strong Dow and S&P 500 stocks. The tech-rich Nasdaq Composite, which is more closely tied to Bitcoin, was the only three. the major indexes are expected to see gains on Monday, driven by exactly the same force of shifting macro expectations.

Bitcoin’s recent outperformance is not a sign that it has left macro worries behind, but rather an indication of how sensitive cryptos are to the macro picture.

Beyond Bitcoin, Ether, the second largest crypto, rose 10% to $1,750. Smaller tokens or altcoins were also buoyant, with Cardano climbing 8% and Polygon 9% higher. Memecoins were also in the green, with Dogecoin and Shiba Inu up 8% each.

“Basically, cryptocurrencies are being helped by a change in monetary policy expectations,” FxPro’s Kuptsikevich said. “In less than a week, markets have come full circle on expectations, going from a 25bp rise to a 50bp rise and back again. later this year fell on Monday and Friday, which is positive for cryptocurrencies.

That was the setup on Tuesday, when February’s Consumer Price Index (CPI) reading kickstarted the rally. The CPI is a key measure of inflation, and decades-high inflation is what prompted the Fed to raise rates over the past year.

Headline CPI rose 6% year-on-year, in line with expectations and a decisive slowdown from January’s 6.4% price growth. He firmed traders’ bets that the Fed will raise interest rates by just 25 basis points next week, the odds of which rose to 82% on Tuesday from 65% on Monday, according to the CME FedWatch Tool. Markets are pricing the probability of a bigger upside at 0%.

Write to Jack Denton at [email protected]

[ad_2]