Bitcoin surpasses $42K amid ETF hopes, end of Fed rate hike

Bitcoin price surpassed $42,000 on Monday, a level not seen since the TerraUSD stablecoin collapse in April 2022. The broader cryptocurrency market also experienced gains, with a market cap gauge of the top 100 cryptocurrencies rising by over five percent.

Most of the bullish sentiment comes from growing optimism that the Federal Reserve’s rate hike cycle may be nearing its end, speculation about potential reductions in benchmark borrowing costs next year and the possible approval of the first U.S. spot Bitcoin exchange-traded funds (EFTs).

According to CoinDesk Indices data, Bitcoin had been trading around the $40,000 mark for days before Monday. The cryptocurrency is trading above $41,600 at the time of writing, marking a 24-hour increase of about six percent. Ether is also trading around $2,240, representing a similar percentage gain.

The upward trend extended to crypto company stocks. Coinbase (COIN), a cryptocurrency exchange, surged nearly nine percent in pre-market trading. Crypto miners like Marathon Digital (MARA) and Riot (RIOT) also experienced gains of over ten percent.

Crypto’s recovery comes despite recent turmoil, including the collapse of FTX and fraud charges against its founder, Sam Bankman-Fried. Regulatory scrutiny has also intensified, with Binance and CEO Changpeng “CZ” Zhao facing penalties.

Despite these challenges, optimists view the push for stricter regulations as a sign of the maturing $1 trillion cryptocurrency industry. The crypto industry is also eagerly awaiting the U.S. Securities and Exchange Commission’s (SEC) decision on several applications for spot Bitcoin ETFs, including one from BlackRock Inc. Bloomberg Intelligence anticipates a batch of these products to gain SEC approval by January.

Potential surge ahead

It bears mentioning that an abrupt halt to the market-driving rate-cut expectations could send Bitcoin tumbling. Additionally, technical indicators suggest that the powerful rally may be overstretched and prone to a correction. Bitcoin’s RSI momentum indicator signals that the cryptocurrency may be “overbought,” potentially indicating a risk of a correction.

However, Bitcoin has historically tended to continue its upward trajectory following overbought signals, as demonstrated by its impressive gains so far this year, outperforming traditional assets like stocks and gold.

The upcoming 2024 Bitcoin “halving” event, which reduces the token rewards for miners by half to limit supply, is another significant upside catalyst.

“We could see Bitcoin run toward $50,000 before any major correction,” said Cici Lu McCalman, founder of Venn Link Partners, as quoted by Bloomberg. She attributed the projection to factors such as the halving event and the prevailing outlook for U.S. monetary policy.

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