Key takeaways:
- Bitcoin gained over 8% on Wednesday and sparked broader bullish activity across digital assets markets
- The upward trend was fueled by several macroeconomic factors, including President’s Biden executive order on crypto and rising inflation rates
- While yesterday’s rally was shortlived, the factors that contributed to it will play an important role in the coming weeks and months
On Wednesday, Bitcoin along with the majority of other digital assets experienced notable upward price movement that led to the cryptocurrency market cap nearly reclaiming the $2 trillion valuation. Despite today’s market pullback, the macroeconomic factors that contributed to yesterday’s upswing will likely play an outsized role in the coming weeks and months.
Bitcoin Jumps to $42,000, LUNA Tops the Charts With 20% Gains
The U.S. is moving towards a clearer regulatory environment for crypto
Being home to the biggest amount of cryptocurrency investors, mining firms, and developers, the blockchain community is eagerly awaiting how the world’s largest economy will deal with crypto legislation.
Recent moves by the Biden administration and especially U.S. Treasury Secretary Janet Yellen have been welcomed by the broader crypto community, which, in part, led to Bitcoin’s strong market performance on Wednesday. A leaked statement by Yellen showed that President Biden will not seek comprehensive changes to the current regulatory environment.
Yesterday’s mistakenly published statement turned out to be correct. Earlier today, President Biden issued an executive order on crypto, which was mostly vague in its language and, if anything, quite bullish for the long-term success of the DLT industry. An excerpt from the executive order reads:
“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk.”
Peace talks between Russia and Ukraine led to optimism in the markets
Another important geopolitical factor that played an important part in swinging markets into the green zone on Wednesday was the announcement that the foreign ministers of Ukraine and Russia will be sitting down for a talk in Turkey.
The traditional, as well as crypto markets, welcomed the diplomatic approach. Case in point, the cryptocurrency market cap increased by roughly 8% and nearly reached the $2 trillion mark. S&5 500 experienced a similar, albeit a smaller upswing, gaining more than 150 points in the span of the day.
Growing inflation highlights Bitcoin’s store of value characteristics
The rising inflation is one of the biggest concerns for investors, governments, and regular people alike. As the value of fiat currencies started buckling under the pressure of decade-long quantitative easing policies that were put in overdrive due to the coronavirus pandemic, retail and institutional investors have begun looking for safe-haven assets to protect their wealth.
Gold, historically the most popular store of value and hedge against inflation, has gained 8.5% in the last month, a massive upswing for the otherwise very stable precious metal. Bitcoin, like gold, is not tethered to the worldwide monetary system, at least not directly. Also, Bitcoin’s artificially capped supply provides built-in protection against inflation. This means that it could perform decently well as an inflation hedge – a claim that is supported by none other than traditional financial giant Goldman Sachs.
The bottom line
The markets have been all over the place in recent weeks. While it is impossible to predict what the future will look like, certain macroeconomic factors, such as the US’ intention on being a leader in digital assets and 40-year high inflation, could help Bitcoin perform well throughout 2022, despite the growing economic uncertainty.
