BitcoinBTCUSD +8.67% and other cryptocurrencies were surging on Friday, buoyed by a mashup of macro factors and optimism over regulation. But analysts said the rally could be short-lived as the outlook for risk-sensitive assets remains tricky.
The price of Bitcoin has jumped 8% over the past 24 hours to $20,700, blowing past the key $20,000 level that has held back the largest digital asset for much of September. Bitcoin is back in the $20,000 to $25,000 range that it has mostly held since mid-June, when a dramatic selloff drove it down from $30,000.
Multiple macro factors were helping drive cryptos higher in tandem with stocks, as the Dow Jones Industrial Average and S&P 500 were set to rise Friday and snap a three-week losing streak. Since the influx of more mainstream investors into crypto in late 2020, Bitcoin and its peers have shown to be largely correlated with other risk-sensitive assets such as equities.
The market was upbeat Friday even in the face of more central bank hawkishness, including a speech from Federal Reserve Chairman Jerome Powell, who described a Fed that would not relent on tighter policy until inflation was firmly under control.
Stocks and cryptos have been battered this year by an aggressive tightening of financial conditions by central banks, which have made historic interest-rate hikes in a bid to rein in red-hot inflation. Higher rates both dent demand for risk-sensitive assets and raise the risk of recession, hurting risky bets like Bitcoin.
“The price [of Bitcoin] could test mid-August high at around $22,00, but given what some Fed members, including Chairman Powell, said this week, too much optimism could be dangerous,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank.
Also buoying Bitcoin was a fall in the U.S. dollar, which has surged to 20-year highs, and heaped pressure on the digital currency. The U.S. Dollar Index, which measures the greenback against a basket of six peers, fell more than 1% Friday.
“Short term, of course, it’s all about macro and tightened liquidity. Longer term, however, the foundations for future growth are being laid,” said Mahesh Vellanki, managing partner at Web3 venture firm SuperLayer. “It’s going to be a tough few months for Bitcoin and crypto. That said, Bitcoin has shown strength in that it hasn’t tanked a lot further, as many have been predicting, though another such big drawdown is not beyond the realm of possibility.”
Another boost to Bitcoin came in the wake of remarks from tough-on-crypto Securities and Exchange Commission Chairman Gary Gensler, who said he backed giving the Commodity Futures Trading Commission (CFTC) regulatory authority over Bitcoin. Gensler said the CFTC should have more authority over tokens that are not securities.
“Bitcoin is trading up in Friday’s Tokyo session as “The market welcomes SEC chief Gary Gensler’s remarks,” said Hasegawa. “This is somewhat a plus for Bitcoin since Bitcoin futures are traded at CME and hence outside the purview of the SEC’s regulation.”
But eye-popping short-term gains can’t change the fact that all of crypto remains under pressure, with Bitcoin trading at less than one-third its all-time high from November 2021. While many in the industry remain optimistic, much of the shine on crypto is gone from the days of late 2021, when El Salvador made the digital token legal tender in a project that has since bombed, underscoring the challenges to widespread adoption.
Beyond Bitcoin, EtherETHUSD +4.50% advanced 5% to near $1,700. Interest in the second-largest crypto has boomed in recent months amid anticipation of a fundamental upgrade to the Ethereum blockchain network known as The Merge, with Ether’s gains blowing past Bitcoin in the months since the mid-June market trough.
Altcoins, or smaller cryptos, also surged. Solana was up 8% and CardanoADAUSD +3.38% rallied 5%. Memecoins also rose, with DogecoinDOGEUSD +4.03% and Shiba InuSHIBUSD +5.50% gaining 5% and 8%, respectively.