If Bitcoin surpasses $35,000 by Christmas, you can thank Jerome Powell for it.
Under the leadership of Chairman Jerome Powell, the Federal Reserve has put a stop to the upward trend in interest rates. Will this action be sufficient to sustain the booming market momentum leading up to Christmas?
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In the weeks leading up to Christmas, there is typically a "Santa rally" in the equity markets, driven by a sense of goodwill. This seasonal occurrence is usually a temporary blip and not particularly significant. However, this year, we might witness a more substantial rally, thanks to the combined efforts of the United States Federal Reserve, the Securities and Exchange Commission, and BlackRock, all working together to bring holiday cheer.
The Federal Open Market Committee (FOMC) recently concluded its second-to-last meeting of 2023 and decided to maintain stable interest rates. Notably, the U.S. has managed to rein in inflation, which had reached 9.1% in June 2022, to its current level of 3.7%. This achievement can be attributed to the Federal Reserve's aggressive interest rate hikes, bringing the Federal Funds Rate to 5.25-5.5%, the highest since 2001.
Despite the success of this campaign, there are ongoing concerns in the markets regarding the potential impact of higher or sustained interest rates on triggering a U.S. recession. The Fed is also showing some degree of caution in response to inflation concerns.
If the next inflation report from the Bureau of Labor Statistics on November 14 indicates a decrease, it's likely that investors will anticipate an upcoming interest rate cut, leading to increased investments in risk assets. This, in turn, will positively affect equity markets and even bond markets as yields drop and the yield curve's back end flattens.
Crypto markets will follow a similar trend, with Bitcoin currently priced at $35,218 and maintaining a strong correlation with the broader financial markets. What could provide an additional boost is the potential approval of the first U.S.-based Bitcoin spot ETF, predicted by J.P. Morgan to occur before January 10. Rumors of BlackRock's application approval have already contributed to Bitcoin's resurgence to the $35,000 range, a level it hasn't seen since the pre-Terra Luna era of 2022.
The eventual approval of the ETF is expected to further drive Bitcoin, Ether, and a large portion of the altcoin markets. However, if investors follow the adage "buy the rumor, sell the fact," there may be a small dip before a more sustained rally. Nonetheless, ETF approval is undoubtedly positive for the cryptocurrency market, potentially becoming the most significant driver since the conditions created by the COVID pandemic led to Bitcoin's peak at $60,000 in 2021.
There are potential obstacles on the horizon, including the prospect of higher U.S. inflation before the year's end and the possibility of heightened tensions between Israel and Palestine. Either of these factors could potentially dampen the end-of-year Santa rally, but current trends do not suggest this.
Bitcoin has already experienced substantial growth this year. Despite a dip to around $15,000 following the FTX crash in November 2022 and starting 2023 at just over $16,000, its current level of $34,000 to $35,000 represents growth of over 100%. It's worth noting that taking advantage of Bitcoin's extreme volatility requires astute trading or a fair bit of luck, and many crypto investors are still dealing with year-on-year losses.
As we approach the year's end, it's a good time to take a step back and consider Bitcoin and the crypto markets with fresh eyes. Even if the much-anticipated Santa rally doesn't materialize, we can still celebrate the fact that crypto has weathered another challenging year and is ending on a positive note.
