Bitcoin price makes a comeback and hits eight-month high
Bitcoin hit an eight-month high on Thursday as investors jumped back into risky digital assets, despite renewed promises by regulators and lawmakers to rein in the cryptocurrency sector.
Bitcoin traded near $25,000, a 10 percent gain from the previous day, even as the stock market faltered. Wall Street investors appear increasingly convinced that more interest rate hikes will be needed to curb inflation, which has fueled volatility in markets over the past week.
But crypto investors appear to be operating in a different reality, the DealBook newsletter reports, and their optimism comes as signs of a regulatory crackdown grow in the wake of the collapse of crypto exchange FTX in November.
On Wednesday, the Securities and Exchange Commission proposed a new “custodial” rule which, among other things, will limit asset managers’ ability to invest customer money in crypto-assets. The proposal follows a series of recent moves by regulators to give investors extra protection in a market notorious for wild price swings.
A similar issue was front and center on Capitol Hill on Tuesday, as the Senate Banking Committee held a hearing to discuss new safeguards for crypto investors, a possible first step toward legislation. “Now is the time to consider how to protect consumers from unregulated digital assets, and ultimately who we want our financial system to serve,” said Sen. Sherrod Brown, Democrat of Ohio and the committee’s chairman.
On Monday, New York’s Department of Financial Services ordered Paxos, a crypto firm, to stop creating BUSD, a so-called stablecoin, due to “unresolved issues” over its relationship with crypto exchange Binance, which carried the coin’s brand.
Last week, the SEC charged crypto exchange Kraken with securities violations, arguing that its “staking” practice — where users pledge crypto holdings to companies in exchange for large returns — was akin to selling an unregistered investment contract.
And then there is the shadow of the spectacular implosion of FTX, which left investigators on a global hunt to recover billions in missing assets. Amid efforts to recover funds to repay FTX’s customers, attention has recently turned to $400 million sitting in an interest-bearing bank account.
So what’s behind the Bitcoin rally? Some say it is a so-called short squeeze, where those who have bet against Bitcoin have to cover their positions by buying more. Another explanation is tax-loss harvesting, where investors sell at a loss at the end of the year to reduce taxes, then add to their holdings again when the calendar turns. A third potential factor: Crypto investors appear to be selling their holdings in so-called altcoins and putting the money into the relatively more established Bitcoin.
