What happened
Several cryptocurrencies rallied Tuesday morning based on buyers' hopes that the Federal Reserve, which has been aggressively raising interest rates this year, could ease back a bit from its hawkish monetary policy.
As of 10 a.m. ET, the price of the world's largest cryptocurrency by market cap, Bitcoin (BTC -4.45%), was up by 4.8% over the previous 24 hours, hovering around $20,000. The world's second-largest cryptocurrency, Ethereum (ETH -4.37%), was 4.2% higher, and the price of XRP (XRP -3.21%) was up 6.8%.
So what
Investors have the Reserve Bank of Australia to thank for sending stocks and cryptos higher Tuesday morning after it raised its benchmark rate by 25 basis points (0.25 percentage points) when most experts had expected a 50-basis-point hike. Philip Lowe, governor of the Reserve Bank of Australia, attributed the smaller move to the fact that policymakers have already hiked rates "substantially in a short period of time."
Image source: Getty Images.
Furthermore, Lowe and his colleagues are starting to get concerned about the economic outlook and how these rate hikes will affect consumers once their full impact is realized.
"One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions," Lowe said in a statement. "Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments."
Fast-rising interest rates have been a massive headwind for crypto and most other risky assets, and have prompted huge declines in their valuations. The U.S. Dollar Index, which tracks the U.S. dollar against other currencies, has also fallen in recent days. That's another positive for crypto because Bitcoin tends to have an inverse relationship with the dollar.
Despite the news out of Australia, the Federal Reserve is still expected to implement two more big rate hikes before the year ends, although it is possible that plan will change as new data on inflation comes in.
In other news, XRP, the cryptocurrency developed by the founders of Ripple Labs, continues to make gains as it barrels toward what looks to be a favorable outcome in a nearly two-year legal battle that could soon be coming to a conclusion.
The Securities and Exchange Commission (SEC) sued Ripple Labs in 2020 for not registering XRP as a security when it raised funds in 2013, and for not providing enough transparency to investors. But it seems like the SEC is starting to back off. Last month, both Ripple and the SEC submitted filings asking the U.S. District Court for the Southern District of New York to make a summary judgment on the case.
Recently, Judge Analisa Torres ruled that the SEC needs to release documents from a former director, who may have previously written in a speech that he does not believe Ethereum is a security -- a piece of evidence that Ripple believes is vital to its case.
Furthermore, SEC Chairman Gary Gensler said at a recent conference that he thinks Bitcoin and Ethereum should be regulated by the Commodities Futures Trading Commission, which crypto advocates would prefer to them being regulated by the SEC.
Now what
While I am not convinced that the Reserve Bank of Australia's smaller-than-expected rate hike means the U.S. Federal Reserve will ease up in its war on inflation, I'm hopeful that we'll see a more positive inflation report on Oct. 13, which could help the narrative.
Still, I've been impressed with Bitcoin's ability to hang around the $20,000 level, and I ultimately think Bitcoin and Ethereum will prove to be good long-term buys. I also think XRP is headed toward victory in its nearly two-year-long legal battle, which bodes well for that token.
