Bitcoin has risen to levels not seen in about nine months as a result of market turmoil in the banking sector, hotter-than-expected inflation data, and renewed hopes for a dovish Federal Reserve.
For the first time since June 2022, the largest digital asset traded for more than $28,000 on Sunday. It peaked at $28,258. The value of one bitcoin has increased by nearly 70% since the beginning of the year. Ethereum is up about 17% since the beginning of last week, and so-called altcoins like Solana and Cardano are also on the rise.
Last week, market participants faced a sea of uncertainty. The Cboe Volatility Index (VIX), often referred to as the “fear gauge,” surged above 30 and caused a wild swing in US 2-year yields. Bitcoin, however, remained unwavering and headed only upwards.
The value of bitcoin is linked to the availability of cash and the level of real interest rates. “It looks like we’re entering a new regime,” Ilan Solot, co-head of digital assets at Marex, said, referring to the recent decline in real rates and the resulting increase in liquidity conditions.
After several US lenders failed last week, broader markets saw volatility, and new worries surfaced about Credit Suisse Group AG before UBS Group AG agreed to buy its fellow Swiss bank on Sunday. Some investors have responded by asking the Fed to halt its interest rate increases. However, data released midweek showed that core CPI rose more than expected, highlighting the fact that the war on inflation is far from over. At this week’s Fed meeting, it’s difficult to predict how the central bank will react to the mixed signals.
Bitcoin bulls, who see the digital asset as a hedge against inflation despite last year’s evidence to the contrary, were buoyed by the widespread unpredictability that plagued the financial sector. The price of Bitcoin fell by more than 60% in 2022 due to a string of scandals and bankruptcies.
Despite the internal strife in the digital asset space, the token also increased in value. This month, USD Coin’s value briefly decoupled from the dollar, and the US Securities and Exchange Commission reaffirmed its position that the vast majority of cryptocurrencies are in fact securities.
On Friday, the S&P 500 index fell 1.1%. Bitcoin would have fallen along with US stocks if it had continued trading at its 2022 levels. This month, however, the link between the digital asset and the S&P 500 has weakened.
“In this instance, we are definitely seeing people look to Bitcoin,” said David Martin, head of institutional coverage at digital asset prime brokerage FalconX.