Bitcoin’s recent surge to levels unseen in about two years is often linked to the anticipated approval of bitcoin ETFs. However, the significant drop in interest rates is also playing a crucial role in propelling BTC prices higher.
For some time, the prevailing belief was that Bitcoin’s rapid climb, from $27,000 in early October to over $43,000, was primarily due to the market’s optimism around the potential approval of bitcoin ETFs in the US. While signs increasingly support this anticipation, another significant factor seems to be in play: Interest rates are declining notably in key bond markets, signaling hopes that central banks may not only halt rate hikes but might also move towards easing monetary policies.
For instance, yields on 10-year US Treasuries have dropped 8 basis points on Tuesday to 4.18%, a substantial decrease from the 16-year high of above 5% reached in October. The two-year Treasury yield stands at 4.60%, down more than 50 basis points since the beginning of the same month.
The downward trend came as the market began anticipating an end to the US Federal Reserve’s 18-month trend of tighter monetary policy. Predictions have even extended to short-term rate markets, projecting the possibility of the Fed initiating rate cuts as early as the first quarter of 2024.
The likelihood of one or more 25-basis-point Fed rate cuts by March 2024 stands at around two-thirds, as indicated by the CME FedWatch tool. Looking further to May, markets have priced in nearly a 90% chance of rate cuts, including a small probability of three rate cuts by then.
The shift from expectations of considerably tighter monetary policy in 2022, a contributing factor to Bitcoin’s major bear market that year, to the current outlook of easier policy in 2024, is likely influencing this bullish momentum. This change isn’t limited to Bitcoin alone.
The alteration in the rate outlook is influencing various assets positively. Alongside the notable bond market rally, the stock market has displayed significant strength, recording its 18th-best monthly performance since 1950 in November, returning 8.9% over the month, according to Carson Group’s Ryan Detrick.
Gold, often considered alongside Bitcoin as a hedge against loose central bank monetary policies, has also seen upward movement, rising over 10% since the start of October and recently hitting an all-time high above $2,100 per ounce.
Hence, it appears that the combined impact of prospective bitcoin ETFs and the optimistic outlook on interest rates has placed Bitcoin in an exciting position, soaring vigorously and fostering hopes for sustained growth in a manner unseen for about two years.
