Gold reaches record levels as speculation increases that the Federal Reserve will imminently reduce interest rates.
The world's biggest cryptocurrency rose as high as $42,162 on Monday, its highest since April 2022, seemingly casting off the funk that had settled over crypto markets following the collapse of FTX and other crypto-business failures last year. It was up 6.49% at $41,311.26 as of 1605 GMT.
Bitcoin surged to its highest price in nearly 20 months while gold hit an all-time peak on Monday, as frenzied investor speculation that interest rates will fall next year rippled through assets across the globe.
The cryptocurrency soared to more than $42,000 on Monday, also boosted by optimism that the toughest regulatory punishments for the industry have passed. It later fell back to $41,662, up 7.4 per cent on the previous day.
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| cc: reuters |
Gold rallied as much as 3 per cent to $2,135 per troy ounce on Monday, a new record, before slipping to $2,025 per troy ounce, according to LSEG data.
The actions come after a recent surge in stock and bond investments, driven by increasing anticipations of an imminent reduction in borrowing costs by the Federal Reserve, despite Chair Jay Powell's statement on Friday that it was too early to determine if the central bank had successfully addressed inflation.
Luca Paolini, chief strategist at Pictet Asset Management, remarked, "When you observe bitcoin and gold, you notice a very similar pattern. All asset classes that typically perform strongly when the Fed significantly reduces rates are performing well."
Traders are now betting the first rate reduction could come as soon as March after a sharp decline in government and corporate borrowing costs as US bond markets enjoyed their biggest monthly rally in nearly four decades in November.
Lower yields on ultra-safe US Treasury debt have made other assets relatively more attractive to investors. The S&P 500 index closed at its highest level since March 2022 last week, although it was down 0.6 per cent midway through Monday’s session. Recent US economic data has been resilient even while inflation has fallen, further boosting risky assets like stocks.
Max Kettner, the primary multi-asset strategist at HSBC, mentioned that markets were experiencing a "Goldilocks rally" where "virtually all asset classes" were seeing positive sentiment.
Traders noted that the surge in bitcoin purchases, which has seen its value rise by over twenty percent in the last month, was also fueled by increasing investor interest following the resolution of two prominent legal cases that had cast a shadow over the market for the past year.
Last month the US successfully prosecuted Sam Bankman-Fried, former chief executive of FTX, and Binance, the world’s largest crypto exchange. Bankman-Fried was convicted of fraud and Binance paid $4.3bn in penalties after pleading guilty to criminal charges related to money laundering and financial sanctions breaches.
However, despite concerns from numerous traders, US regulators did not close down Binance. Binance is still confronting a distinct legal action from the Securities and Exchange Commission over purported violations of securities regulations.
Henri Arslanian, co-founder of Nine Blocks Management, a crypto hedge fund manager located in Dubai, stated, "Many institutional investors indicated that they required two things before reconsidering involvement in the sector: resolution regarding FTX and transparency concerning Binance."
Ethereum, the second most actively traded cryptocurrency, also rose 8.3 per cent to $2,260 on Monday, its highest level since May last year.
Investors are also hopeful the SEC will approve an exchange traded fund for bitcoin in coming weeks. The SEC has refused for a decade to approve spot bitcoin ETFs, stock market funds that invest directly in the cryptocurrency.
Some of Wall Street’s largest investors, including BlackRock and Franklin Templeton, have joined companies such as VanEck and WisdomTree in submitting filings with the SEC.
The market has long viewed spot bitcoin ETFs as a way to wrest control of digital assets from scandal-ridden crypto groups in favour of mainstream businesses such as BlackRock.
“ETF speculation is going to continue to drive behaviour in the crypto market this week as investors buy into the narrative of the transformative impact opening the market to institutional investors will have on the ecosystem,” said Simon Peters, market analyst at eToro.
As the SEC has initiated a year-long campaign targeting cryptocurrencies, which includes taking enforcement actions against entities like the US-listed exchange Coinbase, there is mounting pressure on the regulator to authorize a bitcoin spot ETF.
This year, crypto asset manager Grayscale achieved a significant legal triumph when a federal appeals court ruled that the SEC was incorrect in dismissing its application to transform its flagship Grayscale Bitcoin Trust into an ETF.