What a weekend it has been in the crypto world. Three of the world's largest cryptocurrencies, Bitcoin (BTC -1.24%), Ethereum (ETH 2.54%), and Dogecoin (DOGE -1.36%), have seen impressive rallies, with a few key psychological thresholds broken through. As of noon ET, these three tokens are up 5.8%, 6.4% and 6.4%, respectively, since Friday at 4 p.m. ET.
Given the rapidly changing economic backdrop and volatility we've seen in everything from bond yields (discount rates) to alternative asset prices, it's wroth diving into what's catalyzing these moves today.
What's driving this rally?
Bitcoin's rally to more than $42,000 per token in early trading this morning represented the largest level the megacap cryptocurrency has seen since early 2022. Interestingly, this move in Bitcoin has been correlated to a surge in the price of spot gold, which recently broke through a record high of $2,100 earlier today, as investors appear to be increasing their bets that inflation could pick up.
Sinking bond yields and heightened geopolitical concerns appear to be driving investors to alternative assets, such as Bitcoin, propping up the entire sector today. Additional interest continues to form around Bitcoin due to its upcoming halving event, which is anticipated to take place in 2024, as well as capital inflows from incoming spot Bitcoin ETFs.
The direction Bitcoin moves often informs how Ethereum performs on a given day, and certainly some of Ether's recent rise can be attributed to this bullish narrative forming in alternative assets. However, Ethereum has also benefited from some token-specific catalysts worth pointing out. Most notably, Mantle has rolled out a liquid staking protocol on Ethereum's main network, suggesting that the Ethereum staking markets could become more decentralized. Ethereum's price has surged above $2,200 per token at the time of writing, marking a high not seen since mid-2022 as well.
Finally, Dogecoin's rally appears to be closely correlated to the broader move in the overall sector, with speculators and traders continuing to focus on this meme coin as a way to play the crypto sector's momentum in either direction. This correlation can be seen in the liquidation data for Dogecoin, with roughly $2 million of perpetual futures contracts liquidated yesterday, one of the largest spikes we've seen in recent months.
Are these cryptos worth buying into at year end?
For investors seeking diversification or are particularly interested in hedging some of their equity exposure with alternative assets, cryptocurrencies such as Bitcoin and Ethereum remain top of mind (in addition to gold, of course) as ways of both generating better alpha (higher returns) during bull markets, and potentially providing some downside protection via these assets' lower beta (lower correlation moves) in down cycles.
That said, the 2022 bear market highlighted some of the risks of putting cryptos in the same bucket as other alternative assets. Gold and other commodities performed much better than crypto last year, so betting on these digital assets as any sort of hedge against uncertainty is still a strategy that's unproven (considering the world's first crypto, Bitcoin, was conceived post-great financial crisis).
Overall, these three tokens certainly appear to reflect a growing consensus that some sort of soft-ish landing is ahead. While I'm not as certain as many of the top economists and talking heads that such a landing can be achieved, it's possible. And for those looking for a way to ride any positive momentum right now, these three assets are certainly in high demand.
I'm remaining cautious on crypto until there's more clarity, but I can also certainly see why investor positioning is favoring these assets right now.
