www.coindesk.com 7 h Reading time: ~3 m
Bitcoin lost momentum on Monday, teeter-tottering above and below $28,000 as investors seemed ready to hunker down in advance of the U.S. central bank’s next interest rate decision on Wednesday.
The largest cryptocurrency by market capitalization was recently trading at about $27,745, down a roughly a percentage point from 24 hours ago. Early Monday (UTC), bitcoin had climbed above $28,400 just hours after the U.S. Federal Reserve announced it had teamed up with five other major central banks to ensure a steady flow of the U.S. dollar, a dominant reserve currency, in the global financial system.
“Faith in the fiat banking system is waning rapidly and the only alternative, safe haven that is portable is bitcoin,” Stefan Rust, CEO of data aggregator Truflation, wrote in an email to CoinDesk. “The rapid rise in the price of bitcoin is a sign of fear that, more problems lurk in the banking sector – particularly since the fall of Credit Suisse.”
Rust added: “The bank runs we are seeing are also making it difficult to access gold, while fear of inflation and hyperinflation in some countries are all driving a flight to BTC.”
In recent days, the bitcoin’s price has risen as the threat of a global banking meltdown diminished and investor hopes mounted for more dovish Fed policy, possibly even suspending its year-long streak of interest rate hikes at its meeting starting Tuesday, although a 25 basis point increase seems most likely after last week’s only mildly improved inflation report.
“That’s probably most likely,” Tom Shaughnessy, co-founder of crypto research platform Delphi Digital, told CoinDesk TV’s “First Mover program.”
Sunday’s announcement that the Fed would increase the frequency of the dollar swap lines with the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada and the Swiss National Bank from weekly to daily, aims to calm exchange volatility and avoid strains in the supply of credit to households and businesses worldwide, as CoinDesk Managing Editor Markets Asia Omkar Godbole reported, adding that “the increased frequency of swap lines has cleared the way for an unabated rise in risk assets, including bitcoin. The leading cryptocurrency by market value is largely seen as a hedge against the banking system
Ether, the second largest cryptocurrency in market capitalization, was recently changing hands at about $1,731, down 3% from Sunday, same time. Other cryptos among the top 25 by market value were largely in the red, with APT, the token of layer 1 network Aptos, and MATIC, the native crypto of layer 2 platform Polygon recently off more than 8% and 6%, respectively. SOL, the token of the Solana blockchain rose slightly.
Delphi Digital’s Shaughnessy said that the driving force behind the current bitcoin surge and its potential sustainability were difficult to determine, although he noted that “this is the first time in history that we have a global banking crisis, and crypto validated to a degree and well known that people can now seek an alternative and go into crypto.”
Laguna Labs’ Rust wrote that the Federal Open Market Committee’s (FOMC) announcement would likely determine bitcoin’s path forward.
“The only thing holding bitcoin back this week will be the FOMC meeting, with investors nervously awaiting the Fed’s next interest rate decision,” he wrote, noting that if the Fed did scale back its current policy, “markets will be very nervous and it will be a testing time for bitcoin.”
He added: “Will it keep going in the opposite direction to global markets, or fall back in line? Certainly, the bitcoin maxis believe the former.”