Bitcoin reached a milestone on Monday, surpassing $40,000 against the US dollar for the first time in 2023. The surge was fueled by growing optimism about an early interest rate cut by the Federal Reserve, coupled with anticipation surrounding the potential approval of a spot exchange-traded fund (ETF) for the cryptocurrency.
The world’s largest cryptocurrency rose by 2.7% to $40,521.0, extending its gains following a three-week rally. Earlier in the day, Bitcoin hit $40,825.0, marking its highest level since May 2022, prior to the stablecoin Terra’s failure triggering a prolonged downturn in cryptocurrency markets.
Ethereum, the second-largest cryptocurrency globally, also experienced a 1.9% increase, reaching $2,210.49, its highest level since May 2022.
A significant factor supporting Bitcoin and crypto prices is the weakness of the US dollar. Growing expectations for an early interest rate cut by the Federal Reserve have led to a rally in risk-driven assets.
Recent comments from Fed Chair Jerome Powell were perceived as less hawkish, emphasizing the need for a balance between maintaining tight monetary conditions and fostering a soft landing for the US economy. Traders are now pricing in a more than 90% chance that the Fed will keep rates unchanged in December and a more than 60% chance of a rate cut as early as March 2024. The Federal Reserve is scheduled to meet on December 12 and 13.
Despite the dovish sentiment, US inflation remains above the Fed’s 2% annual target, and the labor market appears robust. Nonfarm payrolls data expected this Friday will provide additional insights.
Lower interest rates are seen as favorable for Bitcoin, as easy monetary policy and increased speculative trading contributed to the cryptocurrency’s record high of nearly $69,000 in 2021. The subsequent decline was influenced by rising interest rates, high-profile bankruptcies, and regulatory crackdowns, including the recent guilty plea by Binance, the world’s largest crypto exchange, to money laundering allegations.
Bitcoin, however, has more than doubled in value this year, with substantial gains in recent weeks. Investors are particularly focused on the potential approval of a US ETF directly tracking Bitcoin’s price. Proponents argue that such approval could attract significant institutional capital into Bitcoin. Despite doubts about the institutional appeal of a spot ETF, Bitcoin’s value has surged. The Securities and Exchange Commission (SEC) has given no indication of near-term approval for a spot ETF, although Grayscale won a crucial legal battle against the regulator to advance its application for a spot ETF.