Bitcoin Rises Amid Memecoin Mania and Fed Easing Expectations
Bitcoin, the world’s most popular cryptocurrency, has been on a tear lately, surging more than 74% since the start of 2023. The token has been boosted by a number of factors, including a wave of memecoin mania, a looming halving event, and expectations that the Federal Reserve will soon ease its monetary policy.
Memecoin Mania
One of the drivers of bitcoin’s rally has been the emergence of a new token standard on the Bitcoin blockchain, known as BRC-20. These tokens are designed to emulate internet memes and have names such as Ordi, Pepe, Piza and Meme. Some of these memecoins have appreciated as much as 28,000% in recent weeks, attracting a lot of attention and speculation1.
The memecoin craze has also increased the demand for bitcoin transactions, as users need to pay fees in bitcoin to send and receive BRC-20 tokens. This has pushed the average transaction fee on the Bitcoin network to its highest level since May 2021, reaching $23.77 on May 121. Higher fees make bitcoin more scarce and valuable, as miners earn more rewards for processing transactions.
Bitcoin Halving
Another factor that could propel bitcoin to new heights is the upcoming halving event, which is expected to occur in May 2024. The halving is a process that reduces the reward for miners who create new blocks on the Bitcoin network by 50%. This means that the supply of new bitcoins will decrease by half, creating a deflationary effect.
The halving is designed to keep the total supply of bitcoins limited to 21 million, and to mimic the diminishing returns of gold mining. Historically, the halving has been a bullish catalyst for bitcoin, as it creates a supply shock and increases the scarcity of the token. The previous two halvings, in 2016 and 2020, were followed by massive price increases in the subsequent months and years.
Bob Ras, cofounder of blockchain firm Sologenic, believes that the next halving will push bitcoin past its previous all-time high of $67,000 reached in November 2021. “When bitcoin’s halving kicks in a year from now, we’ll likely be well on our way past the previous all-time high,” Ras told Insider2.
Fed Easing
A third factor that could boost bitcoin is the changing macroeconomic outlook and its implications for monetary policy. The Federal Reserve has been hiking interest rates since December 2021, reaching 2% in May 2023. However, many analysts expect that this will be the last increase of this tightening cycle, as signs of slowing growth and inflation emerge.
Ras thinks that bitcoin’s rally anticipates a future scenario where the Fed will have to reverse course and cut interest rates again, and possibly resume quantitative easing. He argues that this would create a favorable environment for bitcoin, as it would lower the opportunity cost of holding a non-yielding asset and increase the demand for alternative stores of value.
“Coupled with signs of slowing [economic] growth, the changing macro picture is pointing towards a Fed that will likely soon have to cut interest rates and inject a lot of liquidity into the market,” Ras said2. “If the Fed doesn’t do this, then we could face a serious contraction, punctuated by a possible credit crunch. Either way, all roads appear to be leading to a loosening of monetary policy sooner rather than later.”
Ras is not alone in his bullishness. Standard Chartered published a recent note that said bitcoin could soar to $100,000 by the middle of next year2, and Matrixport predicted that bitcoin could more than double to about $65,000 by next April2.
A Hedge Against Financial Turmoil
A final factor that could support bitcoin’s rise is its role as a hedge against financial turmoil. As the banking crisis that started with Silicon Valley Bank in March continues to spark contagion fears, more retail and institutional investors have been turning to bitcoin as a safe haven2.
Bitcoin is seen as a decentralized and censorship-resistant asset that is not controlled by any central authority or intermediary. It also has a limited supply that cannot be manipulated or inflated by governments or central banks. These features make it attractive for investors who want to diversify their portfolios and protect their wealth from systemic risks.
Bitcoin’s performance during periods of market stress has been mixed so far. In March 2020, when the coronavirus pandemic triggered a global sell-off, bitcoin plunged along with other assets. However, in October 2021, when China banned all cryptocurrency transactions and mining activities, bitcoin rebounded quickly and reached new highs.
The current banking crisis could be another test for bitcoin’s resilience and appeal as a hedge. If bitcoin can weather the storm and maintain its upward momentum, it could prove its critics wrong and cement its status as a legitimate asset class.