Bitcoin's recent rally has investors pitching competing narratives about crypto’s role
Started from the bottom… now we’re here? Crypto winter's frost may be starting to melt: bitcoin's price has climbed more than 65% this year, while ethereum's up over 40%. Over the past month alone, BTC's jumped close to 15%. What’s fueling the rally depends on who you ask.
- Flight to safety: BTC boosters say that recent bank failures actually helped crypto prices. When banking concerns grow, the argument goes, crypto becomes an attractive alt.
- Fed up: Some analysts say a cool-down in Fed rate-hike expectations may’ve boosted appetite for crypto investments.
- Shallow pool: Since FTX’s collapse, the bitcoin market has had reduced liquidity (think: fewer buyers/sellers), which can lead to big price swings.
Not fightin' the Fed… We know rate-hike decisions often affect stocks, but they can also affect crypto. When interest rates are expected to rise, safer assets (think: Treasury bonds) become more attractive against riskier investments (think: stocks, crypto). Stocks soared after the Fed knocked rates to near zero early in the pandemic, and plunged as the central bank quickly raised rates to fight inflation. Meanwhile, bitcoin's price declined seemingly in tandem with the techy Nasdaq — throwing cold water on the narrative that crypto is an inflation hedge (think: “digital gold”). Recently, expectations of a less hawkish Fed coincided with bitcoin's gains.
Clean narratives can hide messy truths… Some investors may see crypto as a safe haven after Silicon Valley Bank's implosion and the global banking panic that followed. But ultimately many factors — including rate expectations and liquidity — likely contribute to crypto prices. Now, with the collapse of three crypto-friendly banks, there's yet another factor to consider: the industry’s decreased banking access.