The world's largest cryptocurrency, Bitcoin (BTC 0.74%), suddenly saw its largest daily gain in six months today, as investors contemplated a Federal Reserve pivot if the U.S. economy deteriorates.
As of 10:17 a.m. ET today, the price of Bitcoin traded more than 10% higher and rose above $21,000. The price of the world's second-largest cryptocurrency, Ethereum (ETH -0.19%), traded 6.4% higher, while the price of the meme token Shiba Inu (SHIB 0.41%) was up more than 8%.
Another day and more changing sentiment for the market. All year the market has been trying to figure the Fed out. How long will the Fed stay hawkish? How aggressively will the Fed hike interest rates? Could the Fed pivot in 2023?
It's hard to know right now, but today the market seems to think the Fed might need to change course if the economy tips into a more severe recession, which many believe is a possibility in 2023. Rising interest rates have crushed Bitcoin and the crypto market all year long because they make riskier assets less appealing as yields rise on safer assets.
Additionally, the dollar, which has been very strong this year and likely contributed to a struggling crypto market, also fell today.
"Short term, of course, it's all about macro and tightened liquidity. Longer term, however, the foundations for future growth are being laid," said Mahesh Vellanki of the Web3 venture firm SuperLayer, according to Barron's. "It's going to be a tough few months for Bitcoin and crypto. That said, Bitcoin has shown strength in that it hasn't tanked a lot further, as many have been predicting, though another such big drawdown is not beyond the realm of possibility."
In another positive sign for crypto, Gary Gensler, the chair of the Securities and Exchange Commission (SEC), made some comments on crypto regulation Thursday that were welcomed by the crypto community. Gensler said at a conference that he planned to work with lawmakers to give the Commodity Futures Trading Commission more oversight to regulate cryptocurrencies like Bitcoin and Ethereum.
Crypto proponents would like to see cryptocurrencies regulated as commodities and not securities, because they would likely face tougher regulation as securities. This would also provide clarity for the crypto market, which has long been operating in a gray area.
Still, Gensler also said, "Let's ensure that we don't inadvertently undermine securities laws," adding that "we've got a $100 trillion capital market. Crypto is less than $1 trillion worldwide. But we don't want that to somehow undermine what we do elsewhere." He also said that he still thinks the majority of cryptocurrencies outside Bitcoin and Ethereum should be classified as securities.
The market can change its opinion on a dime, so I wouldn't read too much into today's surge, even though it is certainly welcome news for crypto investors. On Monday, investors may change their outlook completely on the Fed. But Gensler's comments are welcome, and the sooner Bitcoin and Ethereum have a clear regulatory regime, the less uncertainty there is.
Near term, I think we could still see choppy waters ahead, but I continue to like Bitcoin and Ethereum at these levels. I still have very little interest in Shiba Inu, as its ascent has mostly been fueled by its meme-based following and has very little to do with any kind of cryptocurrency fundamentals.