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The sudden surge in the Bitcoin price is being credited to a convergence of several critical factors and wider macro trends. For one, market participants are reading a lot into remarks made by Federal Reserve Chairman Jerome Powell. Last week he indicated that the existing US fiscal strategy is stringent enough, hinting at a possible halt to further increases in interest rates.

Chairman Powell weighed the dangers of overextending interest rate hikes against the risks of insufficient increases to control inflation. He suggested that the full impact of the rate increases might not be fully apparent yet and emphasized the importance of maintaining the Federal Reserve’s credibility in fighting inflation to ensure that public expectations regarding inflation remain stable. He agreed with other Federal Reserve officials that it’s too early to claim a triumph over inflation, noting that price rises are still higher than the Fed’s 3% goal. October saw a 3.5% increase in core inflation. Powell also reaffirmed the Fed’s readiness to further tighten monetary policy if necessary, although he noted that the urgency for excessive economic restraint has lessened.

The Bitcoin price closes in on $40,000. Source Brave New Coin BLX.

Currently, the CME Fedwatch tool, which tracks the sentiment of interest rate traders, indicates that the market believes that there is a 98.8% chance that the Fed will keep interest rates the same and a 1.2% chance that they will cut interest rates. The high probability that the Fed will pause rate hikes at the October 31st meeting, follows the decision in late September to pause interest rates.

Given signs of a stronger US economy and slowing inflation, there are increasing indications that the Fed is ending its monetary tightening cycle. Bitcoin has historically been stronger during periods of looser monetary policy and when the global economy is stronger.

Alongside the Bitcoin price surge, gold has also had a positive 30 days – up around 7%. This is likely down to both assets having a strong ‘safe-haven’ appeal. While some Western economies are showing resilience, there is still global volatility because of the ongoing violent conflicts between Israel and Hamas, and Russia and Ukraine. There is the view that the US economy may soon begin printing money to support war efforts, watering down the value of the dollar.

Bitcoin was built to be a decentralized payment network that removed intermediaries and counterparties from transactions. It has a purposefully built hard-coded, predictable monetary supply. Investors may be finding BTC’s inherent narrative, a pure asset uncontrolled by interest rate cycles and chaotic central bankers more appealing now. This environment, with higher geopolitical volatility and imminent money printing by central banks, favors Bitcoin.

The final driver for the push past US$35,000 are clear signs that a spot Bitcoin ETF is set to be approved. There has been a great deal of momentum for a spot Bitcoin ETF in recent weeks. Grayscale’s legal win against the SEC meant the US’s major securities watchdog would have to re-open the asset management firm’s application— accept it, or find new reasons to deny the application.

This was followed by Fidelity making amendments to its BTC ETF application to add clarity around key questions. This was read by the market today as a positive sign towards the approval of the application.

In October, Blackrock added its Bitcoin ETF on the Depository Trust and Clearing Corp. (DTCC) website with an assigned unique ID number, under the ticker symbol IBTC. This doesn’t mean regulatory approval but it is a clear sign that Blackrock is confident that its ETF will be approved.

“Def notable BlackRock is leading charge on these logistics (seeding, ticker, dtcc) that tend to happen just prior to launch,” Eric Balchunas, a Senior ETF analyst at Bloomberg wrote in a Monday X (formerly Twitter) post today. “Hard not to view this as them getting a signal that approval is certain/imminent.” Nonetheless, Balchunas later deleted this tweet.

“Seeding an ETF,” Balchunas explains, “is when initial funding is provided (typically) by a bank or broker-dealer used to purchase a few creation units (in this case bitcoin) in exchange for ETF shares which can be traded in the open market on day one.” Balchunas, however, does also mention that seeding does not mean Blackrock is buying a large amount of BTC, it is simply buying a small amount for operational reasons.

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