While bitcoin ETFs have frequently been cited for sparking the huge, recent BTC price rally, dramatically lower interest rates are helping, too.
This has bitcoin prices in a place they haven't been in about two years: soaring breathlessly, with some calling for continued gains.

For months, conventional wisdom has been that bitcoin's [BTC] sharp rally, which took its price from $27,000 in early October to above $43,000, was caused by investors enthusiastically betting bitcoin ETFs will soon get approved in the U.S.

And while evidence piles up that those ETFs will get blessed by regulators, something else appears to be at work: Interest rates have plunged in key bond markets, signaling optimism that central banks might soon not just put an end to rate hike cycles, but begin to ease monetary policy.

For instance, yields on 10-year U.S. Treasuries are down 8 basis points on Tuesday to 4.18% – leaving them down almost 90 basis points since hitting a 16-year high above 5% in October. The two-year Treasury yield is at 4.60%, down more than 50 basis points from the start of that month.

The big drops came as market participants began to price in an end to the U.S. Federal Reserve's 18-month run of tighter monetary policy. Traders didn't stop at that, though: Short-term rate markets now anticipating that the Fed will start cutting rates as soon as the first quarter of 2024.

There's now about a two-thirds chance of one or more 25-basis-point Fed rate cuts by March 2024, according to the CME FedWatch tool, which draws its data from those short-term rate markets. Going out to May, markets have priced in just shy of a 90% chance of one or more rate cuts, including about a 5% chance of three rate cuts by that time.

To the extent that sharply tighter monetary policy throughout 2022 was a factor in bitcoin's major bear market that year, now-entrenched expectations of easier policy in 2024 are surely playing a role in this bull move. And it's not just bitcoin.

The 180-degree turn in the rate outlook is lifting assets across the board. In addition to the big rally in the bond market, the stock market in November (as represented by the S&P 500) had its 18th-best monthly performance since 1950, according to Carson Group's Ryan Detrick, returning 8.9% over those 30 days.

Gold, oft-mentioned in the same breath as bitcoin for its properties as a hedge against easy (or overly easy) central bank monetary policy, has been on the move as well, rising more than 10% since the start of October, and touching a new all-time high above $2,100 per ounce earlier this week.

So, it seems prospective bitcoin ETFs and rates optimism have bitcoin in a place it hasn't been in about two years: soaring breathlessly and with many hopeful for continued gains.

Bitcoin btc Interest Rates Federal Reserve

Stephen Alpher

Stephen is CoinDesk's managing editor for Markets. He previously served as managing editor at Seeking Alpha. A native of suburban Washington, D.C., Stephen went to the University of Pennsylvania's Wharton School, majoring in finance. He holds BTC above CoinDesk’s disclosure threshold of $1,000.