Bitcoin (BTC) is benefiting from instability in the financial system, falling inflation that allows the Federal Reserve to become less hawkish and a regulatory overhang that has hit stablecoins, crypto-services provider Matrixport said in a report Thursday.
“As those three trends persist, bitcoin prices can stay high and continue to rally," Markus Thielen, head of research at Matrixport, wrote in the note.
“Investors have now woken up,” Thielen said, noting that the Fed’s interest-rate policy has severely damaged some investment portfolios and threatened the financial stability of the economy.
Several flights to quality are happening at the same time, Thielen's note said.
Traders and investors have shifted from higher beta – or more volatile – cryptocurrencies into bitcoin alongside a transition from stablecoins, which are less volatile. When Paxos Trust’s binance USD (BUSD) encountered regulatory scrutiny, money moved from BUSD to BTC, and when Circle Internet Financial's USD coin (USDC) lost its peg, money flowed from USDC. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, usually the U.S. dollar.
The potential classification of some digital assets as securities has also become an overhang for many cryptocurrencies, the note added.
“While there appears to be a clear path to regulation, there is a specific understanding that some can escape regulation,” the report said, noting that regulators and central banks have classified bitcoin as a commodity, not a security.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.