Why is Bitcoin going up? $26K breached but there is reason for suspicion

Key Takeaways

• Bitcoin has surged beyond $26,000 as interest rate expectations flip 
• Inflation reading provides further impetus as investors dream of return to lower interest environment and surging crypto prices
• There are reasons to be hesitant here, however, writes our Analyst Dan Ashmore
• Shutdown of three crypto banks will hurt industry, while there has been nothing but bearish developments since the start of the year
• The decoupling from other risk assets is also unusual and has not been seen to the upside since 2021

I don’t really make predictions because what would be the point? I’m just a boy hitting keys on a laptop, and I know better than to fool myself into thinking I know enough to predict the market. 

However, the speed of this Bitcoin run-up surprises me. Not that you should put any weight at all into that – if you’re in the habit of trusting people’s words on the Internet, I suspect your bank wallet is already hurting, anyway – but let me explain what is confusing me. 

What is happening to Bitcoin?

First, let us surmise what has happened in the last week to kick this rally off. 

We saw the startling collapse of Silicon Valley Bank (SVB) last week, followed by Silvergate, which sent shockwaves throughout the market. This had particular implications for crypto for a couple of reasons. 

The first was USDC, the second biggest stablecoin on the market. Revealed to have 8.25% of its reserves held in SVB, the market feared for the solvency of the stablecoin. Of course, this fear all settled down when the US administration stepped in to shore up the crisis and guarantee deposits would be made whole. 

This shored up the panic and crypto began rebounding. But that is not all that happened. The fact that the banking sector wobbled so drastically shifted market expectations surrounding the future path of interest rate hikes. 

With such creaking evident, the market has moved to betting that the Fed is more or less done with interest rate hikes. Fed futures currently imply a 72% chance of no hike at next week’s Fed meeting. Just last week, this was 0%, with the baseline expectation (70%) expecting a 50 bps hike.

Looking further out at the long-term trajectory, the prognosis has shifted even more dramatically. There is now only a 1.6% chance of higher rates in July, compared to 100% last week, again looking at…