Bitcoin and Ether on track for best month since 2021 as appetite for risk returns

Signs that the Fed may be near the end of its rate rise cycle have lifted all risk assets

Earlier this year, cryptocurrencies were buffeted by the Fed’s shift to monetary tightening. Reuters

Bitcoin and Ether, the world’s two largest digital tokens, are headed toward their best month since 2021 amid a revival of risk appetite in global markets and optimism about an Ethereum network upgrade.

Bitcoin is up 28 per cent in July and Ether 70 per cent, although their rallies paused on Friday.

Both were little changed, with Bitcoin at about $23,950 as of 5pm in New York and Ether hovering around $1,730.

Growing signs of a US economic slowdown are leading some investors to the view that the Federal Reserve will be finished raising rates by the year's end and might even move to cutting borrowing costs in 2023.

That, in turn, would create a more favourable backdrop for speculative assets such as cryptocurrencies, which have taken a drubbing this year.

“The week has continued a very welcome up trend,” Adrian Kenny, senior sales trader at GlobalBlock, wrote in a note. “The crypto, and wider markets in general, have seen somewhat of a relief rally in the last few days.”

Cryptocurrencies are trying to recover from a rout this year that wiped more than 50 per cent off the MVIS CryptoCompare Digital Assets 100 index.

Earlier this year, virtual coins were buffeted by the Fed’s shift to monetary tightening and ensuing leveraged blow-ups, such as cryptocurrency hedge-fund Three Arrows Capital.

“Signs the Fed may be nearing the end of their hiking cycle have lifted all risk assets, and crypto has also benefited,” said Cici Lu, chief executive at consulting company Venn Link Partners.

“Liquidation of leveraged positions seems to be over,” she added, and “markets may have found the bottom”.

Meanwhile, the Ethereum blockchain is due to move to a more energy-efficient so-called proof-of-stake system. That’s been a tailwind of late for its native token, Ether.

The virtual coin could push toward $1,915 to $2,000 in the days ahead, according to Mark Newton, head of technical strategy at Fundstrat.

“Ethereum looks more attractive technically than Bitcoin in the short run, so pullbacks into mid-August should be buyable,” he said.

Still, cryptocurrencies were under pressure at the end of the week as two key US inflation gauges on Friday posted larger-than-forecast increases, adding to worries that prices will remain persistently high for longer than expected.

Elsewhere, US Securities and Exchange Commission chairman Gary Gensler said he is stepping up his push to get cryptocurrency trading platforms to register with the Wall Street regulator.

Joe DiPasquale, chief executive of BitBull Capital, said he will be watching to see where Bitcoin closes out the month and whether it retests key supports around $19,000 to $20,000.

“Successful bounces from that range could give bulls a solid foundation for a continued rally,” he said.