Wall Street appears to finally be getting the Federal Reserve’s message: More interest rate increases will be needed to keep inflation from surging again. That reality check has added volatility to the stock market in the past week.
Cryptocurrency investors seem to be operating in a different reality, the DealBook newsletter reports. Bitcoin, which was trading above $24,000 on Thursday, has soared to a six-month high as investors eagerly jump back into risky digital assets, despite a spate of headlines that seemingly test the optimism of crypto supporters.
There is the shadow of the spectacular collapse of the cryptocurrency exchange FTX, which left investigators on a global hunt to recover billions in missing assets. Amid attempts to claw back funds to repay FTX’s customers, attention has turned to $400 million that’s sitting in an interest-bearing bank account.
And the Securities and Exchange Commission proposed a new “custody” rule on Wednesday that would, among other things, limit asset managers’ ability to put customer money into crypto assets.
So what’s behind the rally? Some say that it’s a so-called short squeeze, in which those who have bet against Bitcoin have to cover their positions by buying more. Another explanation is tax-loss harvesting, in which investors sell at a loss at the end of the year to reduce their tax hit, and then add to their holdings again when the calendar flips.
Whatever it is, market watchers are already questioning how long the rally can last.