Market News

BY Sunil Jagtiani and Suvashree Ghosh

(Bloomberg) -- Bitcoin topped $42,000 as frenzied speculation in cryptocurrencies gathers pace, extending the largest digital token’s rally to more than 150% this year.

The biggest cryptocurrency rose as much as 6.1% to reach $42,144 as of 10:22 a.m. on Monday in New York. Bitcoin was last at these levels in April 2022, before the TerraUSD stablecoin collapse that accelerated a $2 trillion rout in digital assets. It’s on track for the biggest annual gain since 2020.

Smaller tokens such as Ether and meme-crowd favorite Dogecoin also pushed higher. Bitcoin Cash jumped 8% and a gauge of the largest 100 crypto coins added more than 3.3%. The broad cryptocurrency advance came even as stock markets were mixed, with benchmarks in the US, China and Hong Kong sliding.

Cryptocurrency-linked stocks in the US also gained, with exchange operator Coinbase jumping 5.4%, miner Marathon Digital rising 8.5% and Bitcoin proxy MicroStrategy climbing 6.2%.

Investors are increasingly convinced that the Federal Reserve is done with rate hikes as inflation cools, turning the focus to the likely extent of reductions in benchmark borrowing costs next year. The changed backdrop has fueled a rally across global markets and has reignited speculative interest in digital assets.

“Bitcoin continues to be supported by optimism around SEC approval for an ETF and Fed rate cuts in 2024,” Tony Sycamore, a market analyst at IG Australia Pty, wrote in a note. Technical chart patterns point to $42,330 as the next level to watch for, he added.

The crypto industry is also awaiting the outcome of applications from the likes of BlackRock Inc. to start the first US spot Bitcoin ETFs. Bloomberg Intelligence expects a batch of these products to win Securities & Exchange Commission approval by January.

Bitcoin’s revival from the 2022 crypto crash has weathered a US crackdown that put Sam Bankman-Fried behind bars for fraud at FTX and handed top crypto exchange Binance and its founder Changpeng Zhao rap sheets and big fines.

Optimists argue the push to curb dubious practices and the prospective ETFs signal a maturing crypto industry and the potential for a wider investor base.

Recent enforcement actions “have instilled confidence among investors,” said Su Yen Chia, co-founder of the Asia Crypto Alliance. Bitcoin “is aping momentum in traditional finance with Fed rate-hike expectations fading,” she added.

Lingering Risks

A reset in rate bets or unexpected snarls for the ETFs could yet derail Bitcoin, while some technical indicators suggest the virtual currency’s rally is stretched.

For instance, Bitcoin’s weekly relative-strength index, a momentum gauge, closed above 75 for the past two weeks. Readings above 70 are viewed as signaling “overbought” conditions.

At the same time, Bitcoin in the past decade rose an average 15% over the subsequent month after printing a weekly RSI of more than 75, according to data compiled by Bloomberg.

Bitcoin’s jump in 2023 has outstripped assets such as global stocks and gold. In the derivatives market, open interest recently advanced to landmark levels at the CME Group for Bitcoin futures and at the Deribit platform for options on the most high-profile crypto coin.

Bitcoin Halving

One prop for sentiment is the so-called Bitcoin halving due next year, which will cut in half the amount of tokens that Bitcoin miners receive as reward for their work. The quadrennial event is part of the process of capping Bitcoin supply at 21 million tokens. The coin hit records after each of the last three halvings.

“We could see Bitcoin run toward $50,000 before any major correction,” said Cici Lu McCalman, founder of blockchain adviser Venn Link Partners. She cited the halving and the outlook for US monetary policy as among the reasons why.

Bitcoin and the wider crypto market are still some way below the all-time highs achieved during the pandemic-era crypto bull run. The largest token peaked at almost $69,000 in November 2021.