Investing.com – temporarily rose above $42,000 on Monday, supported by growing optimism that the Federal Reserve could cut interest rates next year and the possibility of its upcoming approval a spot exchange-traded fund for the token.
By 05:54 ET (10:54 GMT), the world’s largest cryptocurrency was up 6.2% to $41,984.7, extending gains after a three-week rally. Bitcoin hit $40,825.0 earlier in the day – its highest level since May 2022. The gain marks an acceleration in the digital asset’s ongoing recovery from a more prolonged slump a year due to the failure of the TerraUSD stablecoin network.
, the world’s second-largest cryptocurrency, also rose 4.5% to $2,264.80. Cryptocurrency exchange Coinbase (NASDAQ:) rose more than 8% in US trading. Cryptocurrency miners Marathon Digital (NASDAQ:) and Riot Platforms (NASDAQ:) rose more than 10%.
Expectations that the Federal Reserve may cut interest rates sooner than expected next year are a key support point for cryptocurrency prices, driving down the dollar and increasing the appeal of risky assets.
Some market participants interpreted closely watched comments from Fed Chairman Jerome Powell last week as less tough. Although Powell argued that officials could announce further interest rate hikes to rein in inflation, he noted that policy was now in “restricted territory.”
Traders have begun pricing in a more than 95% chance that the U.S. central bank will leave interest rates unchanged in December and a more than 50% chance that it will cut rates as soon as March 2024, according to Tools Investing.com’s Fed rate monitor. The Fed is scheduled to meet on December 12 and 13.
But the pace of price growth in the US remains well above the Fed’s 2% annual target, while the labor market also appears strong. Nonfarm payrolls data this Friday is expected to provide more signals.
Recent history shows that the prospect of lower interest rates could bode well for Bitcoin. In 2021, an era of loose monetary policy and increased speculative trading activity helped lift the token to a record high of nearly $69,000.
It then plummeted as borrowing costs rose and the cryptocurrency industry was devastated by a series of bankruptcies and regulatory crackdowns. High-profile scandals have also rocked the sector, with one of the most notable involving Binance – the world’s largest cryptocurrency exchange. The group pleaded guilty to Department of Justice charges of money laundering in November and now faces fines of more than $4 billion. Former CEO Changpeng Zhao also pleaded guilty to criminal charges and resigned.
Elsewhere last month, Sam Bankman-Fried, the former head of rival cryptocurrency exchange FTX, was convicted of defrauding investors of billions of dollars, capping a trial that threatened to weaken the wider reputation of the industry.
ETF Expectations Strengthen Bitcoin
However, Bitcoin has more than doubled in value this year, with the bulk of the gains coming in recent weeks as investors eye the possibility of US regulators giving the green light to a series of funds ETFs directly track the prices of cryptocurrencies.
Several leading asset managers, including BlackRock (NYSE:BLK) and Invesco, have filed applications with the U.S. Securities and Exchange Commission (SEC). Analysts at Alliance Bernstein said in a note to clients that if these are approved, they “expect a strong marketing push that will elevate BItcoin as a recognized asset, much like Everyone knows gold.”
But as products like the Grayscale Bitcoin Trust () (OTC:GBTC), which tracks Bitcoin futures prices, have seen investor interest wane over the past year, doubts remain. how much institutional capital a spot ETF can attract.
The SEC has given no indication that it intends to approve a spot ETF in the near term, even though Grayscale has won a key legal battle against the regulator to approve an ETF application delivered immediately.