What happened
Many cryptocurrencies turned positive over the last 24 hours and this morning as investors shook off regulatory issues in the sector and looked toward a Federal Reserve pivot.
Since late afternoon yesterday, the price of the world’s largest cryptocurrency, Bitcoin (BTC 5.20%), traded 3.8% higher as of 9:40 a.m. ET and hovered around $28,425. Meanwhile, the price of the world’s second-largest cryptocurrency, Ethereum (ETH 3.38%), traded nearly 2% higher and the price of the meme token Dogecoin (DOGE 3.91%) was up 2.7%.
So what
The crypto industry has come under a lot of pressure on the regulatory front recently. Two of the main banks serving the sector, Silvergate Capital and Signature Bank, are now no longer doing so and have either been acquired or are planning to wind down their operations.
Image source: Getty Images.
Meanwhile, the large U.S. crypto exchange Coinbase Global recently received a Wells Notice, which means the Securities and Exchange Commission (SEC) is contemplating issuing an enforcement action against the company.
Even more recently, the large crypto exchange Binance and its co-founder Changpeng Zhao have come under scrutiny by the Commodity Futures Trading Commission (CFTC), which alleges that Binance breached the Commodity Exchange Act and didn’t do enough “to prevent and detect money laundering and terrorism financing.”
Investors seem to be more excited about the potential for a Fed pivot after the Fed at its March meeting hiked interest rates by a quarter point and took a much more dovish tone. Fed Chair Jerome Powell said that a tightening of credit in the banking system is likely to occur after several banks collapsed recently and this may end up doing some of the Fed’s work for it in terms of slowing inflation.
Many traders are now betting that the Fed will cut rates by September and a healthy portion also see an interest cut to be possible by July. Cryptocurrencies have been crushed by higher interest rates, which make riskier assets like crypto much less appealing, so an earlier pivot seems to have the market excited. Even just halting interest rates would be an improvement from the Fed’s prior outlook, which looked like the agency could raise interest rates closer to 6%.
Now what
Betting on interest rates is a difficult game and I wouldn’t recommend it. After all, not everyone expects a rate cut. Strategists from BlackRock do not think the Fed will end up cutting interest rates this year because it wants slower growth or a recession to continue to bring down inflation.
Still, the outlook for rates is certainly much better than it was prior to this banking crisis, which does help the outlook for crypto.
I believe Bitcoin and Ethereum will be here for the long haul and are likely to appreciate, so I do view these tokens as good long-term buys. That said, I do not have much interest in too many other cryptocurrencies right now like Dogecoin.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.