Bitcoin's Soaring Surge: A Dance with ETFs and the Symphony of Tumbling Interest Rates

The recent shift in expectations regarding the monetary policy of the Federal Reserve has had a widespread impact on the prices of various assets. While the increase in Bitcoin prices has frequently been linked to the expectation of approved bitcoin ETFs, a substantial decrease in interest rates is also playing a pivotal role.

Bitcoin is currently in an exhilarating position, reaching levels not witnessed in approximately two years, accompanied by optimistic predictions for continuous growth. For months, the prevailing belief has been that Bitcoin's impressive rally, pushing its price from $27,000 in early October to surpass $43,000, was primarily driven by investors speculating on the imminent approval of bitcoin ETFs in the United States.

While indications suggest regulatory approval for these ETFs, another factor is shaping market dynamics. Interest rates have undergone a significant decline in key bond markets, indicating a growing confidence that central banks may transition from tightening monetary policies to easing them.

For example, yields on 10-year U.S. Treasuries fell by 8 basis points on Tuesday to 4.18%, marking a decrease of nearly 90 basis points since reaching a 16-year high above 5% in October. The two-year Treasury yield stands at 4.60%, reflecting a decline of over 50 basis points from the beginning of the same month.

The market's response intensified as participants began incorporating the possibility of the U.S. Federal Reserve concluding its 18-month period of tighter monetary policy. Going beyond that, short-term rate markets are now anticipating rate cuts by the Fed as early as the first quarter of 2024.

According to the CME FedWatch tool, which draws data from short-term rate markets, there is now roughly a two-thirds chance of one or more 25-basis-point Fed rate cuts by March 2024. Looking ahead to May, markets have factored in almost a 90% chance of one or more rate cuts, including a 5% chance of three rate cuts by that time.

If the considerably tighter monetary policy in 2022 contributed to Bitcoin's significant bear market that year, the current expectations of a more relaxed policy in 2024 are likely playing a role in the ongoing bullish trend. This positive sentiment extends beyond Bitcoin, as the 180-degree shift in the rate outlook is benefiting various assets.

In addition to the substantial rally in the bond market, the stock market witnessed its 18th-best monthly performance since 1950 in November, with the S&P 500 yielding an 8.9% return over the month. Gold, often considered in the same context as Bitcoin as a hedge against central bank policy, has also experienced an upswing, rising over 10% since October and reaching a new all-time high above $2,100 per ounce.

Last month was the 18th best monthly return for the S&P 500 since '50.

Looking at previous top 20 monthly returns showed above avg returns going forward.

A yr later up 13.3% on avg and higher 80% of the time.

Bottom line, big mos like we just saw are usually bullish events. pic.twitter.com/AJgEDPLLB3

— Ryan Detrick, CMT (@RyanDetrick) December 3, 2023

In conclusion, the conjunction of prospective bitcoin ETFs and optimism regarding interest rates has placed Bitcoin in a remarkable state not observed in the past two years, instilling hope for sustained growth.

Read More: Crypto Ballet: Harmonizing the ETF Cosmos