Interest rates fall and... Bitcoin goes up!

Following the statement by Federal Reserve Chairman Jerome Powell at the annual Jackson Hole symposium, Bitcoin, along with other assets like Solana, surged by over 6% last Friday, as reported by the blockchain analytics platform CryptoQuant in its weekly report. Powell hinted at the possibility of lowering interest rates soon, a move that typically drives investors toward riskier assets like cryptocurrencies.

Bitcoin, the most valuable cryptocurrency, climbed to a resistance level of $65,000, the highest since August 2nd. At the same time, U.S. Treasury yields fell to their lowest levels since March 2023, further fueling market enthusiasm.

Bitcoin Gains Momentum on Coinbase

The price spike was driven by increased demand from American investors. According to CryptoQuant, this is evidenced by the rise in Bitcoin's value on the crypto exchange Coinbase, reaching its highest level since July. The price "premium" indicates that Americans are willing to pay more to acquire the asset, reflecting strong domestic demand. Additionally, more Bitcoin is moving to Coinbase from non-U.S. exchanges, a trend historically associated with rising prices. This shift highlights the growing influence of American investors in the market as they seek to capitalize on potential benefits from a more accommodative monetary policy.

The Fed's Interest Rate Hints and Bitcoin's Rally: Insights from Arthur Hayes

Arthur Hayes, co-founder of Bitmex, explained in a blog post that investors' excitement over the Fed’s anticipated interest rate cuts is understandable. Investors believe that when money becomes cheaper, assets like Bitcoin, which have a limited supply and are valued in dollars, should increase in value.

Hayes further elaborated that future rate cuts by the Fed, as well as the Bank of England (BOE) and the European Central Bank (ECB), could reduce the interest rate differential between these currencies and the yen. This scenario could potentially trigger a resurgence of the yen carry trade, destabilizing markets unless central banks significantly expand their balance sheets, effectively printing more money.

The yen carry trade is an investment strategy where investors borrow Japanese yen at very low (or even zero) interest rates, convert them into a higher-yielding currency, and invest in assets denominated in that currency. The risk with the yen carry trade is that if global interest rates align with Japan's ultra-low rates, the strategy would become less profitable. A rush to liquidate yen positions could then lead to market turmoil, triggering significant sell-offs in stocks and cryptocurrencies, and causing a price collapse.

Hayes pointed out that Powell's signal came around 9:00 AM GMT-6, as shown by a red oval in the market data. Risk assets such as the S&P 500 index (white), gold (yellow), and Bitcoin (green) all surged as the cost of money dropped. Even the dollar, though not shown, ended the week weaker.

Surge in Perpetual Futures Market

The surge in demand extended beyond the spot markets. The perpetual futures market also saw substantial growth, with the Total Open Interest (the total number of active derivative contracts) increasing by nearly 10,000 Bitcoin following Powell's announcement, according to CryptoQuant. This brought the total open interest to 276,000 Bitcoin, indicating a growing interest in leveraging futures contracts as part of investment strategies.

Despite these positive signals, CryptoQuant reported that the overall demand for Bitcoin has not been as strong as might be expected. The overall growth in demand has been slow and even declined in recent weeks. This situation contrasts sharply with the beginning of the year: in April, when Bitcoin was at $70,000, demand was significantly stronger. Current demand levels suggest that although American investors are influencing short-term price movements, a more sustained and broad-based increase in demand is needed for Bitcoin to fully recover and reach new highs.

The Rise of Bitcoin Millionaires: A 111% Increase in a Year

The increase in Bitcoin's value over the past year has led to a substantial rise in the number of crypto millionaires. According to the Crypto Wealth Report 2024 by Henley & Partners, specialists in wealth migration and international investment, there are now 85,400 crypto millionaires globally, a 111% increase from the previous year. Henley & Partners attribute this growth to the launch of Bitcoin Spot ETFs in January, which they say has attracted significant institutional capital.

The report also revealed that the number of people with more than $1 million in crypto has risen by 95% this year. Additionally, the number of individuals holding over $100 million in crypto has grown, with 325 more people joining this elite group compared to last year.

Among the crypto billionaires is Changpeng Zhao, former CEO of Binance, who has an estimated net worth of $33 billion, according to Forbes. Brian Armstrong, co-founder of Coinbase, ranks second among crypto billionaires with an estimated net worth of $11 billion, followed by Giancarlo Devasini, CFO of Tether, and Michael Saylor, co-founder of MicroStrategy.