Bitcoin and Ethereum, the two largest cryptocurrencies by market size, set fresh highs on Tuesday as global inflation worries and the prolonged age of cheap money supported prices. The Fed’s decision last week to reduce asset purchases while signaling no impending rate hikes looked to be the latest impetus for a move higher.
“The current spike in the crypto asset appears to have been fuelled in part by investors flocking in, perceiving it as a hedge against inflation,” Hargreaves Lansdown Senior Investment and Markets Analyst Susannah Streeter said in an emailed note. “Some appear to have been swayed by the notion that the central bank’s massive monetary stimulus initiatives are feeding inflation, causing the value of money to fall over time, whereas Bitcoin has a set limit on the amount of coins that can be issued.”
Indeed, the total number of Bitcoins that will ever exist is restricted to 21 million, whereas central banks have the ability to issue a limitless quantity of money.
Elon Musk announcement
Another possible explanation for the recent spike is the revelation that Tesla (NASDAQ:TSLA) CEO Elon Musk is planning to sell 10% of his Tesla shares in response to a weekend Twitter poll. If he follows through on his pledge, it is possible that Musk may reinvest part of the money in cryptocurrencies. Musk has previously indicated that he personally owns Bitcoin, Ethereum, and Dogecoin.
The Federal Reserve’s latest Financial Stability Report did little to discourage investor interest in crypto assets. The research, which was issued Monday, gathered input on financial stability threats from a wide variety of contacts, including specialists at broker-dealers, investment funds, political advice companies, and universities.
After persistent inflation and monetary tightening, vaccine resistant variations, China regulatory & property threats, and US-China tensions, cryptocurrency and stable coins were ranked as the fifth most mentioned possible shock to financial stability over the next 12-18 months.
The analysis, however, offered nothing to imply that the crypto business may pose a big danger to US financial stability, saying that the report’s look into crypto markets is “limited.”
What is next for Bitcoin?
According to CNBC, Mikkel Morch, managing director of cryptocurrency hedge firm ARK36, said $70,000 for Bitcoin “looks inevitable.”
Streeter, on the other hand, is more cautious and has issued a caution to some investors.