The modest crypto rally continued on Wednesday after the Bank of Canada surprised investors with a smaller-than-expected interest rate hike and new home sales in the U.S. continued to weaken.
Widely expected to raise its benchmark interest rates by 75 basis points (after a 75-point hike in September and a 100-point move in July), the Bank of Canada instead bumped rates up by just 50 basis points to 3.75%. The bank's accompanying statement showed some concern about economic growth: "Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving," it said.
Shortly after the Bank of Canada news, the U.S. Census Bureau reported a 10.9% decline in new home sales in September as buyers continued to pull back in the face of sharply higher interest rates. The weak economic data could help lead the U.S. Federal Reserve to follow the Bank of Canada and throttle back on the pace of monetary tightening – a possible bullish development for bitcoin.
The two items helped bitcoin (BTC) continue its modest rally this week, with the largest crypto by market value up 7.5% over the past 24 hours and earlier climbing above $21,000 for the first time since mid-September. At press time, the price had pulled back to $20,850.
Bitcoin crossed above $20,000 on Tuesday, breaking through a price point that had effectively served as a ceiling for the past couple weeks.
JJ Kinahan, CEO of IG North America, told CoinDesk TV’s “First Mover” that $20,000 is not a major technical level for bitcoin, but “psychologically, it is a little bit bigger level, and it’s trying to bend the fulcrum point.”
Earlier in the day, the crypto market saw the largest short liquidations (bets against price rises) since July 2021, with traders taking huge losses as the price moved upward.
Ether (ETH), the second-largest cryptocurrency by market value, has had an even larger rally this week, up 15% over the past day to nearly $1,600.
The massive short liquidations could be the catalyst for a long-term rally, according to Sheraz Ahmed, managing partner of STORM Partners.
Ahmed said the rally could be due to “a familiar feeling” that bitcoin was bound to “break out of its current stagnation.”
“BTC never likes to remain in one place too much at a time," he said. "The FOMO might just be kicking in.”
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