What happened
The crypto market was green Tuesday morning ahead of key inflation data due out Wednesday, and thanks to the price of Bitcoin (BTC -2.68%) pushing above $30,000, a level the world's largest cryptocurrency hasn't touched in about 10 months.
As of 9:54 a.m. ET Tuesday, the price of Bitcoin had risen by roughly 3.3% from where it stood late Monday afternoon. Meanwhile, the price of Ethereum (ETH -1.67%), which has the second-highest market cap of any cryptocurrency, was up by 1.4% higher, while the price of Solana (SOL -6.17%) had risen by nearly 8%.
So what
Bitcoin is now up more than 81% this year. Rising interest rates have crushed the values of cryptocurrencies over the past year, but they have started to rally on the hope that the Federal Reserve will soon pivot.
Image source: Getty Images.
A weakening dollar and the regional banking crisis have also sent investors back into crypto, which tends to do well when the mainstream financial system struggles. Also, some investors believe that Bitcoin, which has hovered around the $28,000 level for the past few weeks, has now broken through a key price point.
"The present price pattern is expected to generate a lot of attention, as well as 'fear of missing out' among investors, many of whom have already missed out as the price has regained its significant losses," Zaye Capital Chief Investment Officer Naeem Aslam told a Barrons reporter in an article published Tuesday morning. "It is very conceivable that some profit-taking may occur at the present level, but given the momentum it is extremely probable that the price will continue to rise."
Another idea that seems to be picking up steam again among crypto buyers is that Bitcoin can serve as a hedge against difficult market conditions -- a role similar to that played traditionally by gold. Some investors in the past have promoted the theory that Bitcoin, due to its finite supply, can be a hedge against inflation and act as a form of digital gold.
Analysts at Bernstein recently noted that when there is a "massive monetary debasement event" that leads to a rally in the price of gold, Bitcoin has actually outperformed the precious metal. In the three and a half years since the start of the pandemic, when the Fed began injecting trillions of dollars into the economy to support it through the crisis, Bitcoin has significantly outperformed gold, and it has once again outperformed during the shorter time frame of the regional banking crisis.
Bitcoin is a catalyst for the entire cryptocurrency market and crypto-related stocks. When it does well, investors pay more attention to the rest of the industry, as they seem to be doing Tuesday.
Now what
Bitcoin's price rising above $30,000 is definitely the big story Tuesday, but things could certainly change when new inflation data comes out Wednesday. The Bureau of Labor Statistics will release the Consumer Price Index report for March at 8:30 a.m ET, and that will be one of the last big events expected to impact crypto before the Fed's May meeting.
Many investors still expect the Federal Open Market Committee to press ahead with a quarter-point interest rate hike in May, but if the inflation data comes in much softer than expected, they might change course, although investors have been a bit mixed in their responses to economic data recently. Some are excited that a potential recession could induce the central bank to go so far as to cut the federal funds rate, while others fear the effects of a hard landing for the economy.
Either way, I think Bitcoin and Ethereum are the two best long-term cryptocurrencies to buy. Solana does have certain technical capabilities that make it intriguing as well, but I prefer the two largest cryptocurrencies.
