Interest Rates and Bitcoin ETFs: The Dual Drivers of BTC Surge

• Market Forces and Lowered Interest Rates Drive Bitcoin Prices
• Bitcoin's Remarkable Rally
• Effects on U.S. Treasuries
• Monetary Policy Impact on Bitcoin
• Widespread Asset Uplift

Market Forces and Lowered Interest Rates Drive Bitcoin Prices

Bitcoin$42,260 -0.64% ETFs often get the credit for the recent surge in BTC prices. However, significantly reduced interest rates also contribute to the rally. Current bitcoin prices are on a trajectory unseen in approximately two years, with some market watchers predicting further gains.

Bitcoin's Remarkable Rally

Over the past few months, it has been widely assumed that Bitcoin's (BTC) impressive rally, which saw its price rise from $27,000 in early October to over $43,000, was driven by investors' belief in the imminent approval of Bitcoin ETFs in the U.S. As the evidence mounts that these ETFs will gain regulatory approval, another factor seems to be influencing market behavior: Interest rates in key bond markets have dropped, suggesting optimism that central banks might not only halt rate-hike cycles but also begin to relax monetary policy.

Effects on U.S. Treasuries

Yields on 10-year U.S. Treasuries, for example, fell by 8 basis points on Tuesday to 4.18% - a reduction of nearly 90 basis points since reaching a 16-year high of over 5% in October. The yield on two-year Treasury is currently 4.60%, more than 50 basis points lower than at the beginning of that month. These significant decreases occurred as market players began to factor in a cessation to the U.S. Federal Reserve's 18-month phase of tighter monetary policy.

Such market anticipations didn't stop there: Short-term rate markets are now predicting that the Fed will initiate rate cuts as early as the first quarter of 2024. According to the CME FedWatch tool, which sources its data from short-term rate markets, there is now a roughly two-thirds likelihood of one or more 25-basis-point Fed rate cuts by March 2024. Looking ahead to May, markets anticipate nearly a 90% chance of one or more rate cuts, including around a 5% chance of three rate cuts by that time.

Monetary Policy Impact on Bitcoin

If the rigorous monetary policy throughout 2022 was a factor in bitcoin's significant bear market that year, the firmly rooted expectations of a more lenient policy in 2024 are undoubtedly contributing to this bullish trend. This impact is not limited to Bitcoin.

Widespread Asset Uplift

Gold, frequently referred to in conjunction with bitcoin as a hedge against lax central bank monetary policy, has also been on the rise, appreciating by more than 10% since the beginning of October and peaking at a new all-time high of over $2,100 per ounce earlier this week.

So, it appears that both prospective Bitcoin ETFs and the optimistic view on rates have propelled Bitcoin to heights unseen in nearly two years, and many are optimistic about further gains.

Edited by Jonathan Stoker