Bitcoin (BTC) rebounded above $43,000 on Wednesday, marking its first recovery since the flash crash earlier this week. This surge in Bitcoin’s price has had a domino effect on the crypto market, as well as on shares of companies focused on digital assets. Adding further fuel to the market’s rally was the Federal Reserve’s announcement of projected interest rate cuts for next year.
Although the Fed decided to keep the Fed funds rate unchanged at 5.25%-5.5% during their December meeting, they indicated that the rate could potentially decrease to 4.6% by the end of 2024. This projection implies the possibility of three 25 basis point cuts. As a result of this dovish stance, bond yields and the U.S. dollar index experienced a significant decline, contributing to the upward movement of risk-assets such as stocks and cryptocurrencies.
Bitcoin, being the largest cryptocurrency, surpassed the $43,000 mark later in the afternoon, representing a nearly 5% climb from its earlier position below $41,000. Furthermore, large-capitalization tokens such as Avalanche (AVAX), Cardano (ADA), and Injective (INJ) witnessed gains of nearly 10%, leading the CoinDesk Smart Contract Platform Index (SMT) to become the best-performing sector within CoinDesk’s crypto ecosystem.
The CoinDesk Market Index (CMI), which tracks a basket of approximately 200 digital assets, demonstrated a 3.8% increase over the past 24 hours. Notably, stocks in the crypto industry also experienced significant upward movements. Crypto exchange Coinbase (COIN) closed the trading session with an almost 8% increase, while MicroStrategy (MSTR) led by Michael Saylor gained 5%.
Bitcoin mining companies listed in the U.S., including Marathon Digital (MARA), Riot Platforms (RIOT), and CleanSpark (CLSK), which are often viewed as leveraged bets on BTC, saw gains ranging from 8% to 16% throughout the day.
The optimistic sentiment triggered by the Fed’s decision to hold or lower interest rates typically encourages investors, implying a potential increase in disposable income and higher investments across different asset classes. Bitfinex analysts highlighted that this effect is not limited to traditional markets but extends to novel assets like cryptocurrencies.