Turmoil in the banking sector, hot-than-expected inflation data, and renewed hopes for a dovish Federal Reserve has Bitcoin reaching levels not seen in about nine months.
The biggest digital asset topped $28,000 for the first time since June 2022, trading as high as $28,258 on Sunday. Since the beginning of the year, the price of Bitcoin has increased by almost 70%. Other digital assets are also rallying – with Ethereum up around 17% since the start of last week and so-called altcoins like Solana and Cardano also advancing.
Traders experienced a high level of uncertainty last week in the market. US yields fluctuated wildly for two years, and the Cboe Volatility Index, the so-called fear gauge also known as the VIX, spiked above 30. But Bitcoin held firm – and continued to rise.
“Bitcoin is related to the liquidity situation and the real rate. The real rate has fallen, the liquidity situation has increased, and it seems as if it is entering a new regime,” said Ilan Solot, head of digital assets at Marex.
The broader market fluctuated last week after several US lenders defaulted, and fresh concerns emerged around Credit Suisse Group AG before UBS Group AG agreed to buy another Swiss bank on Sunday. In the fallout, some investors called on the Fed to pause interest rate hikes. But midweek data showed that core CPI advanced more than expected, a reminder that the fight against inflation is far from over. It is unclear how the central bank will respond to the conflicting signals at this week’s Fed meeting.
That uncertainty is a problem in many corners of the financial world but emboldened Bitcoin bulls who see the digital asset as a hedge against inflation, despite last year’s evidence to the contrary. In 2022, several bankruptcies and scandals caused the price of Bitcoin to drop by more than 60%.
The token is also rising despite internal conflicts in the digital asset space. USD Coin briefly lost ground against the dollar this month, and the US Securities & Exchange Commission doubled down on its belief that most digital assets qualify as securities.
The S&P 500 was down 1.1% on Friday. If Bitcoin is still trading as it did in 2022, the token will fall along with US stocks. But this month, the correlation between digital assets and the S&P 500 has disappeared.
“In this case, we definitely see people looking at Bitcoin,” said David Martin, head of institutional coverage at major digital asset brokerage FalconX.
–With the help of Muyao Shen.