The anticipation of a temporary halt in the Federal Reserve’s interest rate hike led to a surge in Bitcoin’s price, breaking its stagnant range of $28,000. On Thursday, Bitcoin climbed to $29,241 during early New York trading, following the Fed’s announcement of a 25 basis point rate increase and speculation of a potential adjustment in its interest rate approach. In addition to Bitcoin, Ethereum (ETH), Cardano (ADA), and Solana (SOL) experienced significant gains.
Also the recent Fed rate hike prompted a surge in gold prices, with spot gold per ounce reaching a new high of $2,079.52 and gold futures rising to $2,051.40. In his announcement, Fed chairman Jerome Powell hinted at a potential pause in the current interest rate increase, suggesting that a U.S. recession may not be inevitable. Saxo Bank analyst Ole Hansen predicts that gold prices will continue to rise due to ongoing U.S. debt ceiling concerns and long-term inflation. As of now, spot gold is priced at approximately $2,043.
Meanwhile, the U.S. banking crisis, including the recent struggles of PacWest Bancorp, has bolstered confidence in Bitcoin. Earlier this year, Bitcoin saw a rally as investors sought a safe haven and self-custody of their funds away from the dollar. Gold and Bitcoin, both considered hedges against inflation, may experience further price movements following the release of the U.S. Personal Consumption Expenditure Index on May 28.
Low inflows to Bitcoin are reducing market depth.
The recent difficulties in Bitcoin’s market depth have been a cause of concern for investors. Despite the optimism generated by the banking crisis, the implosion of FTX and Alameda has led to a significant decrease in BTC liquidity. This, in turn, has prevented the asset from sustaining levels above $30,000. According to some analysts, the lack of liquidity may continue to hinder Bitcoin’s price movement until regulators approve institutional inflows.
Adding to investors’ concerns are pending lawsuits against Binance, the bankruptcy of Genesis, and an upcoming Digital Currency Group (DCG) default. DCG must pay back a $630 million debt to Genesis by May 9-11 or restructure to avoid a default. These events have the potential to negatively impact the cryptocurrency market and contribute to a further decline in Bitcoin’s market depth.
Moreover, Michael Safai of Dexterity Capital suggests that the lack of organic momentum behind cryptocurrencies is a major factor contributing to Bitcoin’s struggles. Safai believes that the headline events that typically drive cryptocurrency prices past sticking points have become infrequent. In other words, there are fewer catalysts to generate significant price movements in the cryptocurrency market.
This situation highlights the importance of market liquidity and the need for regulatory approval of institutional inflows. Without sufficient liquidity, cryptocurrency prices may struggle to maintain their momentum, and investors may become hesitant to invest. It remains to be seen whether Bitcoin’s market depth will recover in the near future or if it will continue to suffer from low inflows and a lack of organic momentum.
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