Bitcoin soars to a one-month high amid central banks’ easing policies

Bitcoin prices reached a one-month high after central banks’ rate cuts in September, with analysts expecting the upward trend to persist.

Bitcoin prices have surged to their highest level since 26 August, propelled by an acceleration in the global central banks’ easing cycle.

The largest cryptocurrency has soared 21% since the second week of September, with its price climbing from above $53,000 (€47,400) to more than $64,000 (€57,200) on Wednesday.

Cryptocurrencies rise amid global easing of liquidity

Cryptocurrencies are among the high-risk assets that have experienced a significant rally amid central banks’ commitments to reduce interest rates.

In September, the European Central Bank implemented its second rate cut of the year, followed by the US Federal Reserve’s substantial 0.5% reduction.

On Tuesday, the People’s Bank of China introduced a series of easing measures, including cuts to key lending rates and increased cash injections into the markets to bolster its economy.

These looser liquidity conditions have fuelled a rally in the digital token markets, propelling Bitcoin prices to a one-month high.

Historically, Bitcoin prices have tended to trend upwards during periods when the Fed’s monetary policy shifts to easing.

During the 2020 pandemic, Bitcoin prices skyrocketed by 1,600%, reaching more than $64,000 in April 2021 from the previous year.

This price surge was primarily driven by global central banks’ near-zero interest rate policies, which unleashed significant liquidity into the markets, alongside a Bitcoin frenzy in mining and trading activities.

However, the crypto markets experienced a sharp decline from their peak in November 2021, when the Fed signalled its intention to tighten monetary policy. Consequently, Bitcoin plummeted by 78%, falling to just above $15,000 (€13,400) by November 2022.

The 2024 surge

2024 has witnessed a resurgence of enthusiasm for cryptocurrencies, with Bitcoin rising 52%, Ethereum increasing by 12%, and many other digital tokens also experiencing price gains.

Bitcoin continues to outperform in the digital token markets, driven by its growing acceptance among major institutions and regulators.

Its price surged by 48% in February following the approval of Bitcoin spot ETFs by the US Securities and Exchange Commission (SEC), just before the significant Bitcoin halving event in April.

This event, which occurs approximately every four years, halves the reward for mining new blocks.

Since March, Bitcoin’s price has remained relatively stable, lacking significant catalysts within the crypto market.

However, it experienced a brief surge in July when US Republican presidential nominee Donald Trump addressed crypto advocates at the Bitcoin 2024 conference.

The former President pledged to make the United States “the crypto capital of the planet and Bitcoin the superpower of the world”.

Bitcoin’s potential for further gains is uncertain

The weakening of fiat currency power, rampant inflation, and the loss of credit in banks have been key drivers behind the surge in Bitcoin prices.

Many believe that decentralised transactions represent the future trend in business, despite ongoing regulatory challenges.

According to crypto enthusiasts, the Bitcoin price rally is far from over.

Activist investor and ARK CEO Cathie Wood stated at the Bitcoin Investor Day conference in 2022 that Bitcoin could be worth more than $1.5m (€1.3m) per coin if institutions allocate 5% of their portfolios to it.

She also expressed her belief that the price will exceed $1m (€890,000) before 2030 in an interview with the New Zealand Herald.

Other analysts have predicted that Bitcoin’s price could reach between $100,000 and $150,000 this year, based on mathematical calculations of the halving cycles.

However, the extreme price volatility poses significant risks for inexperienced investors, as speculative trading continues to be the primary driver in the cryptocurrency market due to a lack of fundamental support.