(Bloomberg) -- The stock market had a rough Monday following several weeks of strength. It was a similar story in the bond market. And gold did a U-turn after climbing to a new record above $2,100 an ounce.
Yet in the digital-assets market, Bitcoin held firm following a weekend rally that took the oldest token above $42,000 for the first time in 19 months as frenzied speculation in cryptocurrencies extended its rally to more than 150% this year.
While traders in traditional markets rethink aggressive pricing of potential Federal Reserve interest-rate cuts next year, Bitcoin-specific catalysts — first and foremost, prospects for the US Securities and Exchange Commission’s to approve exchange-traded funds that directly buy the token — have helped the biggest and oldest cryptocurrency break out of a trading range it had spent the previous three weeks.
Read more: What Is Bitcoin ‘Halving’? Does It Push Up the Price?: QuickTake
“The biggest driver behind the surge in Bitcoin price is likely the number of applications for spot BTC ETF which are expected to be approved by the SEC,” Yiannis Giokas, a senior director with Moody’s Analytics, said in an email. “The race is heating up to launch these vehicles with large asset managers getting ready to acquire the underlying asset.”
Bitcoin rose as much as 6.1% to reach $42,144 earlier and was trading at $41,803 as of 4 p.m. on Monday in New York. The token was last at these levels in April 2022, before the TerraUSD stablecoin collapse that accelerated a $2 trillion rout in digital assets. It’s on track for the biggest annual gain since 2020.
Smaller tokens such as Ether and meme-crowd favorite Dogecoin also pushed higher. Bitcoin Cash jumped 9% and a gauge of the largest 100 crypto coins added more than 4%. Cryptocurrency-linked companies in the US were able to dodge an otherwise weak day in the stock market, with exchange operator Coinbase Global Inc. jumping 5.5%, miner Marathon Digital Holdings Inc. rising 8.6% and Bitcoin proxy MicroStrategy Inc. climbing 6.7%.
The crypto industry is awaiting the outcome of applications from the likes of BlackRock Inc. to start the first US spot Bitcoin ETFs. Bloomberg Intelligence expects a batch of these products to win Securities & Exchange Commission approval by January.
Bitcoin’s revival from the 2022 crypto crash has weathered a US crackdown that put Sam Bankman-Fried behind bars for fraud at FTX and handed top crypto exchange Binance and its founder Changpeng Zhao rap sheets and big fines.
Optimists argue the push to curb dubious practices and the prospective ETFs signal a maturing crypto industry and the potential for a wider investor base.
Recent enforcement actions “have instilled confidence among investors,” said Su Yen Chia, co-founder of the Asia Crypto Alliance.
A reset in interest-rate bets or unexpected snarls for the ETFs could yet derail Bitcoin, while some technical indicators suggest the virtual currency’s rally is stretched.
For instance, Bitcoin’s weekly relative-strength index, a momentum gauge, closed above 75 for the past two weeks. Readings above 70 are viewed as signaling “overbought” conditions.
At the same time, Bitcoin in the past decade rose an average 15% over the subsequent month after printing a weekly RSI of more than 75, according to data compiled by Bloomberg.
Bitcoin’s jump in 2023 has outstripped assets such as global stocks and gold. In the derivatives market, open interest recently advanced to landmark levels at the CME Group for Bitcoin futures and at the Deribit platform for options on the most high-profile crypto coin.
One boost for sentiment is the so-called Bitcoin halving due next year, which will cut in half the amount of tokens that Bitcoin miners receive as reward for their work. The quadrennial event is part of the process of capping Bitcoin supply at 21 million tokens. The coin hit records after each of the last three halvings.
“We could see Bitcoin run toward $50,000 before any major correction,” said Cici Lu McCalman, founder of blockchain adviser Venn Link Partners. She cited the halving and the outlook for US monetary policy as among the reasons why.
Despite the latest leg up, Bitcoin and the wider crypto market are still some way below the all-time highs achieved during the pandemic-era crypto bull run. The largest token peaked at almost $69,000 in November 2021.
--With assistance from Anna Irrera.
©2023 Bloomberg L.P.