Bitcoin Beyond $106,000: Fed Rate Cut Hopes To Trump's Strategic Reserve Fuel Rally

Bitcoin reached an all-time high on Sunday evening, surpassing the $106,000 mark, as investors eagerly await the Federal Reserve’s anticipated interest rate decision later this week. The cryptocurrency’s rally comes just 10 days after it crossed the $100,000 threshold on Dec. 5, marking a significant milestone in its recent upward trajectory.

Other cryptocurrencies like Ethereum, Litecoin, Coinbase and Dash also saw a spike in their mark with Ethereum rising over 4% on Sunday and as of writing this report the mark was up 1.82%. The cryptocurrency rose over 77% in last 12 months.

With the Federal Reserve’s two-day policy meeting set to conclude on Wednesday, market expectations are high for a potential interest rate cut. The CME FedWatch Tool indicates a 97.1% chance of a rate reduction, which investors believe could further boost Bitcoin's price. As a digital asset often seen akin to tech stocks, Bitcoin tends to benefit from lower interest rates, which stimulate investor risk appetite.

Lower rates also weaken the US dollar and increase the money supply, factors that have historically shown a correlation with Bitcoin’s rise. These dynamics, combined with growing institutional interest, have helped propel the cryptocurrency’s recent surge. Bitcoin has gained over 14% in over a month, nearly 56% since the US presidential election, and a staggering 147% in last 12 months.

The optimism surrounding Bitcoin is also fuelled by expectations of a more crypto-friendly regulatory environment under the incoming administration of President-elect Donald Trump. Trump’s campaign promises to make the US a global leader in cryptocurrency, coupled with victories by crypto allies in the House and Senate, have bolstered market sentiment. Additionally, the potential establishment of a national strategic Bitcoin reserve has added to positive market speculation.

"We're gonna do something great with crypto because we don't want China, or anybody else but others are embracing it, and we want to be ahead," Trump said in a recent interaction with CNBC.

"Yes, I think so," Trump said in response to a question about whether the U.S. will create a bitcoin strategic reserve similar to its oil reserve, as per a Forbes report.

In July, then Republican candidate Donald Trump promised to create a "strategic national bitcoin reserve" and predicted bitcoin could eclipse gold's $16 trillion market capitalisation during an appearance at the Bitcoin 2024 conference, the Forbes report added.

"Trump has been friendly towards the regulatory environment of cryptocurrencies, and he has expressed interest in creating a Bitcoin strategic reserve similar to the oil reserves," said Kunal Sodhani, vice president of the Global Trading Center at Shinhan Bank.

This shift in policy direction, alongside growing institutional investment, has fuelled Bitcoin's remarkable price growth, with US ETFs now holding over $12 billion in Bitcoin investments, Sodhani explained.

Sodhani also noted that Bitcoin is viewed by many as the "king" of cryptocurrencies, with its dominance reinforced by increasing mainstream acceptance.

However, he cautioned that despite the bullish trend, Bitcoin is still subject to market dynamics of supply and demand, and its growth is largely driven by investor sentiment rather than tangible underlying assets.

While he does not view Bitcoin’s rise as a bubble, Sodhani acknowledged the speculative nature of the market. "Cryptocurrencies are something new, and as such, they face skepticism. But I believe there's still significant upside."

Another reason for a spike in Bitcoin could be its biggest buyer MicroStrategy that is soon to be listed on Nasdaq 100 index. "They (MicroStrategy) are the biggest investors of Bitcoin in the world and now they will be in the Nasdaq 100 index...so that's another reason where the optimism prevails," Sodhani said, underlining that MicroStrategy's gains will benefit the largest cryptocurrency as well.