• Bitcoin has surged to over $26,000 as interest rate expectations flip.
• The collapse of three crypto banks sent shockwaves to the market, causing investors to fear for the solvency of USDC, the second biggest stablecoin.
• The Fed is more or less done with interest rate hikes according to Fed futures.
Why is Bitcoin Going Up?
Bitcoin has surged beyond $26,000 as interest rate expectations flip and inflation readings provide further impetus for investors who are dreaming of a return to lower interest rates and rising crypto prices.
Cause For Concern
However, there are some reasons that could cause hesitation amongst investors. Firstly, the shutdown of three crypto banks will hurt the industry significantly. Secondly, there has been nothing but bearish developments since the start of this year despite positive news about more institutions adopting cryptocurrencies. Finally, it is unusual that Bitcoin has decoupled from other risk assets when usually it follows them in a downwards trend since 2021.
USDC Reserves
The crash of Silicon Valley Bank (SVB) and Silvergate last week had particular implications for cryptocurrency due to 8.25% of USDC reserves being held in SVB leading to market fears about its solvency . However, these concerns were allayed when the US administration stepped in and guaranteed deposits would be made whole again thus restoring confidence in the market.
Interest Rate Hikes
The banking sector’s wobble shifted expectations surrounding future path of interest rate hikes with markets now betting that Fed is more or less finished with raising them due to 72% chance implied by Fed futures that no hike will occur at next week’s meeting.
Conclusion
In conclusion, while this rally may have been kicked off by panic surrounding collapsed crypto banks which led to fears around USDC reserve solvency, it appears that investors are now pricing in an end to further interest rate hikes which could mean good things for cryptocurrencies going forward if they manage to decouple from other risky assets on their way upwards instead of downwards as seen so far since 2021.