Bitcoin is rallying in a new bull market. How crypto could beat the S&P 500.
Bitcoin
and other cryptocurrencies continued to rally, blowing through key price levels at the end of the week and spurring calls for a new bull market amid a macroeconomic backdrop that could favor cryptos over stocks.
The price of Bitcoin has risen 6% in the past 24 hours to near $26,175, returning to levels seen earlier this week and the highest point for the biggest digital asset since the crypto crash accelerated last June. Bitcoin has jumped well over 50% so far this year, and despite a setback earlier in March – which saw it fall back below the key $20,000 level – was back on a bullish tear.
“From a technical perspective, if Bitcoin could close above $26,000, it could signal the beginning of a bull market,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank.
Traders have shrugged off the headwinds of the collapse of crypto-focused US banks Silvergate and Signature Bank in recent weeks, although these bank failures risk new regulatory pressure and negative effects on liquidity in the digital asset market. Rather, pressures on banks – including the meltdown of Silicon Valley Bank, the biggest since the financial crisis of 2008-09 – that have come as an unintended consequence of the rapid rise in interest rates over the past year have proved to be tailwinds.
The Federal Reserve has raised interest rates dramatically in an effort to bring decades of high inflation under control, reduce demand for risk-sensitive assets such as stocks and crypto, and make Bitcoin closely correlated with
Dow Jones Industrial Average
and
S&P 500.
While traders had assumed the Fed would continue to raise interest rates in the face of continued rising rates, the pressure on banks has spurred a reversal in expectations, with markets now pricing in much more accommodative monetary policy.
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“We see more signs that the Fed will be forced to stop its tightening measures. A reversal or pause from the Fed will strengthen risk assets, including Bitcoin,” said Alex Thorn, head of research at digital asset group Galaxy. “We expect to see significant demand as Bitcoin moving further past $25,000.”
But that doesn’t mean that both crypto and stocks will benefit from this trend. Some investors fear that as the impact of higher interest rates continues to push through the US economy – a process that could take many months – the risk of a decline to recessionary levels will increase. While this will hurt corporate earnings and weigh on the major stock indexes, Bitcoin may be more immune, especially if future expectations remain focused on an eventual reversal by the Fed toward lowering interest rates. Lower prices and easier policies laid the foundation for Bitcoin’s latest bull run.
“When the economy is headed for a recession, the cryptoverse may look more attractive than stocks. It appears that the downside risk is greater for the S&P 500 than for Bitcoin,” said Edward Moya, an analyst at broker Oanda.
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Cryptos remain a high-risk asset – but this week banking stocks have behaved as well – with a laundry list of problems, including the regulatory backdrop and investor interest waning amid the bear market. But at least it makes sense for Bitcoin to outperform the stock market. If the rally can continue past $30,000 — where Bitcoin fell off a cliff last summer — that case could strengthen.
Beyond Bitcoin,
Ether
— the second-largest crypto — advanced 3% to $1,720. Smaller cryptos, or altcoins, were also in the green, with
Cardano
up 2% and
Polygon
jumped 4%. Memecoins showed much of the same, as
Dogecoin
jumped 5% and
Shiba Inu
increased 3%.
Write to Jack Denton at [email protected]
