Why Bitcoin and Other Cryptos Were Bouncing Higher Today

Will the current cryptocurrency rally ever end? Investors could be forgiven for thinking that it won’t, on Wednesday, as prices of the leading asset in that class, Bitcoin (BTC 5.42%), and a large pack of altcoins continued to trade well in positive territory.

In addition to Bitcoin’s 6% advance over the preceding 24 hours, the oft-maligned meme cryptos Dogecoin (DOGE 5.50%) and Shiba Inu (SHIB 4.52%) were up a respective 4.9% and 5.6%. Not to be left behind, Algorand (ALGO 7.97%) was surging more than 11% higher, and Lido DAO (LDO 6.88%) was defying gravity by 5.5%.

The crypto spot ETF saga continues

There was no news of great substance affecting the crypto market that day, and when that occurs in the midst of a rally, the rally tends to extend. However, one fresh development to watch, as it ties into a big reason for the market’s sunny bullishness these days, is a regulatory announcement on spot crypto ETFs handed down on Hump Day.

On Wednesday, the U.S. Securities and Exchange Commission (SEC) said it was delaying a decision by a company called Hashdex to convert its Bitcoin futures exchange-traded fund (ETF) into a spot ETF.

The latter instruments are a hot item just now, as they would allow companies to invest directly in cryptocurrencies. At present, they are prevented from doing so and thus can only do their best to mimic crypto price movements using various methods. Spot crypto ETFs would be appealing for a great many investors who don’t want the considerable hassle that is often involved with owning cryptos themselves.

At the moment, there is a clutch of financial-services companies jostling to list spot crypto ETFs on exchanges. Some are conversions, like Hashdex, and others are newly established securities. One example of the latter is Grayscale Investment’s proposed Ethereum vehicle, the Grayscale Ethereum Futures Trust. On Wednesday, the SEC said it was also postponing its decision on green-lighting this ETF.

No trepidation on inflation

A postponement isn’t a “no,” plus the SEC’s moves on Hashdex and Grayscale keep spot crypto ETFs alive as watercooler conversation and topics of discussion on influential crypto forums online. They also serve as a reminder that there are well-capitalized, ambitious companies clamoring for such assets to finally receive approval.

On top of that, investors continue to be encouraged by the October consumer price index (CPI) data published by the government’s Labor Department last Friday. This indicated that inflation was cooling more than economists anticipated, leading pundits and investors to believe that this will discourage the Federal Reserve from raising interest rates (as has been its wont over the past few years).

Level interst rates — or perhaps even lower ones if inflation continues to lose heat — benefit cryptocurrencies and related assets. That’s because investors tend to take on more risk when they feel that competing “safe” assets (such as the U.S. government’s treasury notes) aren’t going to pay out more.

Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Lido DAO. The Motley Fool has a disclosure policy.


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