Crypto Markets UP: Many crypto market participants awaited Ethereum’s Shanghai upgrade with bated breath, expecting a sharp sell off following the unlocking of more than US$34 billion worth of Ether. Luckily for crypto investors, the sell never came. In fact the opposite happened. The price of the Ethereum network’s native cryptocurrency Ether (ETH) rallied hard on the upgrade, surging more than 12% in the last 24 hours.
At the time of writing, Ether is changing hands for US$2,119 (AU$3,122), now having posted a 67% gain from the beginning of the year.
Ethereum isn’t alone its healthy price action. The second-largest cryptocurrency has been joined by Cardano (ADA) and a number of other so-called ‘altcoins’ who have surged significantly in the last 24 hours, as the broader market turns euphoric on crypto assets.
Crypto Markets up: Why is Ethereum rising today?
The price of Ethereum and many other cryptocurrencies has spiked for a number of reasons. One of the better explanations of the recent price action and where it could go in the coming weeks comes from the CEO of digital asset management firm Galaxy Digital, Mike Novogratz.
Speaking to Bloomberg, Novogratz explained how investor sentiment has turned bullish in the face of the US Federal Reserve potentially looking to slow down on future interest rates hikes after prolonged rate increases throughout 2022. Pointing to the recent financial turmoil caused by a banking crisis, Novogratz says that the Fed won’t look to hike rates as it would “slow the economy.” Additionally, he says that investors should look to cryptocurrency for gains in the face of slowing rates.
“The clearest trades have been and will continue to be long gold, long the euro, long bitcoin, long ethereum—these assets that should do well with the Fed stopping hiking and then cutting,” Novogratz said.
Looking to the price of Bitcoin, which recently eclipsed the fabled US$30,000 mark, Novogratz expects the prominent cryptocurrency to reach a new target of US$40,000 in the coming months, so long as the fed turns ‘doveish’ — investor parlance for a softer position on policy implementation.
“We can consolidate here before moving towards $40,000, as long as the Fed plays out the way I think it’s gonna play out,” he said.
To get a better understanding of where interest rates are headed, minutes from this month’s Federal Open Markets Committee (FOMC) meeting suggests central bankers are on track to raise interest rates slightly again next month as economists forecast a mild recession, set to arrive later this year.
Fed effects
Beginning in November 2021, the Fed set off on a policy of interest rate hikes with the intention of cooling inflation numbers. As we observed, when interest rates surge, investors tend to take their money out of risky assets like Bitcoin and other cryptocurrencies, favouring instead safer assets like treasuries and bonds. What the Fed seemingly didn’t expect was that that rapid rate hikes would spark a banking crisis and force their hand in slowing down on future increases.
Furthermore, a significant change in sentiment can be witnessed in the broader crypto market. For the bulk of 2022 bad news circulating in the press caused massive sell offs. This year however, prices seem to shrug off bad news and continue on an upwards cycle, suggesting higher conviction amongst cryptocurrency holders.
Since the beginning of 2023, regulatory bodies from the United States including the SEC, the CFTC and the DoJ have all launched multiple enforcement actions against crypto firms such as Binance, Coinbase and Paxos Trust. While these tidings would have most likely spelled short-term disaster for the price of cryptocurrencies in 2022, the market seems to have taken the bulk of the bad news in its stride, with Bitcoin and Ethereum respectively up 85% and 67% since January 1.
Now, crypto investors look to the next US Federal Reserve FOMC meeting — scheduled for May 2 — and await the verdict on where interest rates are headed.
