The price of blue chip crypto assets like Bitcoin and Ethereum have held strong despite a massive regulatory crackdown against cryptocurrencies in the United States. The majority of crypto market participants expected legal action from the US Commodity Futures Trading Commission (CFTC) against the world’s largest crypto exchange Binance to create a prolonged sell off, but both Bitcoin (BTC) and Ethereum (ETH) seem to have escaped the drama mostly unscathed.
At the time of writing Bitcoin has posted a 2% gain for the week and is trading for US$28,165 (AU$42,234) apiece. Ethereum is currently trading for US$1,796 (AU$2,693) up a comparable 2.4% over the course of the last seven days.
While a ~2% gain may not seem like much for assets widely renowned for their extraordinary swings in price, it’s a sign of significant strength considering the level of anti-cryptocurrency sentiment coming out of the United States in recent weeks.
On Friday last week, Democratic Senator Elizabeth Warren further stoked the flames of anti-cryptocurrency sentiment, announcing that she would be forming an “anti-crypto army” as an integral part of her re-election campaign to the Senate.
Senator Warren’s move comes just weeks after a number of US regulatory bodies announced new legal actions against crypto companies including cutting off access to certain blockchain-related financial products as well as launching lawsuits against celebrities and exchanges for promoting cryptocurrencies.
So, if cryptocurrencies are being treated with hostility by an overwhelming number of major political actors in the United States, why are the prices holding so strongly?
Why is the price of Bitcoin and Ethereum up today?
In emailed comments to The Chainsaw, Ilya Volkov, CEO and cofounder of YouHodler pointed to a number of different reasons behind the counterintuitive growth of Bitcoin and other cryptocurrencies in recent weeks.
“Global markets have faced a significant outflow of liquidity from risky instruments towards low-risk ones. Despite the rather high risk of further rate hikes, cryptocurrency quotes and gold quotes have recently shown strong performance – this indicates investors’ trust in the Fed is decreasing, which benefits gold and cryptocurrencies, both of which have monetary functions,” Volkov explained.
Volkov adds that the likelihood of a widespread economic recovery is unlikely, pointing to a number of different macroeconomic factors including seemingly ever-increasing interest rates, the growth of global debt and somewhat surprisingly, to the rapidly ageing global population.
“It’s an important fact that the dynamics of the world economy correlate with the growth of the world’s population, which is gradually slowing. For example, the population of China decreased by as much as 850,000 last year.”
Still, Volkov sees the quiet transition from traditional finance to the world of the digital assets as a bull case for the price of mainstay crypto assets like Bitcoin and Ethereum.
“The upside however, is that the ongoing transition to the digital economy may lead to a less painful departure from the old, debt-laden scenario. One of the main beneficiaries, in this case, will be cryptocurrencies and the strongest and most stable crypto projects,” Volkov concluded.
Not everyone shares Volkov’s optimism however, with senior strategists from multi-trillion-dollar asset management firm BlackRock saying hope that the US Federal Reserve would begin cutting back on interest rates was the main driving force behind the surging prices of Bitcoin and Ethereum. Without future rate cuts on the horizon, they expect the value of cryptocurrencies to fall.
Typically when central banks like the Federal Reserve raise interest rates, investors choose to take their money out of risky assets like cryptocurrencies and growth stocks.
“We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit,” the strategists wrote. “We see a new, more nuanced phase of curbing inflation ahead: less fighting but still no rate cuts.”
For BlackRock, the only thing that could see markets experience a reprieve from future rate hikes, would be a larger than expected recession that would force central banks into retreating in order to save the broader economy.
“We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect,” BlackRock strategists said.