- Bitcoin was already edging higher on expectations that the Fed would gradually water down the punch bowl.
- Even then, Bitcoin has struggled to break out of its tight range over the past several months, nor has it pushed against key technical levels of resistance as it becomes a victim of its own success.
Guess who’s back,
Back again,
Bitcoin’s back,
Tell a friend
Guess who’s back, guess who’s back
Guess who’s back, guess who’s back
– Sung to the tune of “Without Me” by Eminem © 2002 off the album “The Eminem Show”
Bitcoin was already edging higher on expectations that the Fed would gradually water down the punch bowl, as opposed to flip over the entire table that it was sitting atop of and as soon as it became clear rate hikes would be within reason, Bitcoin was off to the races.
Staging its biggest rally in almost two months, Bitcoin rose as much as 6% to briefly touch US$40,000 before retracing.
The rebound in Bitcoin has been largely attributed to comments by U.S. Federal Reserve Chairman Jerome Powell who said that the central bank wasn’t looking to raise rates at 75-basis-points a pop at subsequent meetings.
A far more tempered approach to rate hikes assuaged the worst fears that interest rates would be raised aggressively to combat rising inflation and whet appetite for risk, with both equities and cryptocurrencies rallying in response.
Investors took comfort in Powell declaring at a press conference yesterday that a 75-basis-point increase was “not something that the committee is actively considering.”
To be sure, there isn’t as much leverage in the cryptocurrency markets today than there was last year.
Rate hikes don’t directly affect cryptocurrencies, but do affect appetite for speculative assets on the assumption that increased borrowing costs and yields will make investors less willing to speculate to generate returns.
Even then, Bitcoin has struggled to break out of its tight range over the past several months, nor has it pushed against key technical levels of resistance as it becomes a victim of its own success.
Growing institutional interest in Bitcoin, more participation has actually acted as a damper on Bitcoin’s price, reducing its volatility and swings that it was more prone to when it remained a far more niche asset class.
Today, the list of mainstream institutions either participating directly by trading cryptocurrencies or facilitating their take up is growing and that could tamp down Bitcoin’s most excessive price swings.
The world’s largest asset manager BlackRock (+5.41%) has backed stablecoin issuer Circle, while Fidelity recently revealed it would be making Bitcoin available to 401(k) accounts.
As more investors pile into Bitcoin, trading in the cryptocurrency matures and as a result, so does volatility.
