- Bitcoin surges above $26,000 as interest rate expectations reverse
- Inflation provides further impetus as investors dream of a return to a low interest rate environment and soaring cryptocurrency prices
- However, there are several reasons for hesitation here.
- Three Crypto Bank Closures Hit Industry, But Year To Date Has Only Been Bearish
- Decoupling from other risk assets is also anomalous, with no upward trend seen after 2021.
what’s the point? I’m just a laptop typing boy and I know better than to fool myself that I know enough to predict the market.
However, this speed Bitcoin The runup amazes me. If you’re in the habit of trusting people’s words on the internet, I suspect your bank wallet is already damaged, but let me explain what’s confusing me.
What’s Happening with Bitcoin?
First, let’s guess what happened last week to kick off this rally.
Last week saw the surprising collapse of Silicon Valley Bank (SVB) followed by Silvergate, which shocked the entire market. This has had a particular impact on cryptography for several reasons.
The first was USDC, the second largest stablecoin on the market. Markets feared the solvency of the stablecoin after it was revealed that he held 8.25% of his reserves in SVB. Of course, this concern was all put to rest once the US government stepped in to boost the crisis and the bond was paid in full.
This fueled the panic and cryptocurrencies began to rebound. But that’s not all. The fact that the banking sector has been so shaken has changed the market’s expectations about the future course of rate hikes.
The unfolding of these creaks has led the market to bet that the Fed has more or less hiked rates. Fed futures currently indicate a 72% chance of no rate hike at next week’s Fed. Just last week, the baseline forecast (70%) expected a 50 bps gain, which was 0%.
Looking further at the long-term trajectory, the prognosis has changed even more dramatically. Looking at futures again, he only has a 1.6% chance of interest rates rising in July, compared to 100% last week. There is a 31% chance that July interest rates will be lower than they are today. It’s an amazing reversal.
This has pushed Bitcoin upwards aggressively, surging above $26,000 as I write this, its highest level since June of last year. It was also helped by this afternoon’s CPI reading, which fell to 6%, the eighth straight decline and the lowest reading since September 2021.
Has Bitcoin gone too high?
But does this make sense?
On the one hand, this is exactly what we would expect given the significant reversal in interest rate forecasts, but we are confused about the level of outperformance against other risk assets. This is a divergence not seen since the 2021 bull market heyday.
It should provide an idea. Of course, Bitcoin can make moves that other assets only dream of matching, so it may just be doing what it likes.
But then there are ramifications from losing three crypto-friendly banks: Silvergate, SVB and Signature. The US environment is currently barren for cryptocurrency companies. Whether they can simply move abroad remains to be seen.
But even so, the fact that the world’s largest economy is kicking out these crypto companies isn’t good for the industry as a whole. no. However, with markets driven by emotion and the fact that on-ramping is now much more difficult, Bitcoin is still tied to the entire crypto industry.
The tight regulatory environment has already deteriorated significantly since the turn of the year, with the crackdown triggered by the closure of BUSD last month. Throwing in the various bankruptcies that followed FTX (led by the demise of Genesis and DCG), there are plenty of bearish variables regarding the long-term future of the crypto industry.
This is not to say that all these can be overcome. However, this degree of decoupling of cryptocurrencies from other risky assets after the closure of three industry-critical banks is something to consider. I haven’t seen $26,000 in a long time. It still feels a little premature in my insecure mind.
Time will tell, but for now, seeing a green shift in the chart is a good change.