Crypto holds its ground despite open door for rate hikes

Every week, Amdax summarizes what’s happening in the crypto market for you. Want to dive deeper? Click on the links (if available) in this article for more insights.

Market update

Stay informed in three steps:

1. Bitcoin gives back little, gold a lot more
Bitcoin is trading around 76,500 dollars, after briefly touching 81,455 dollars on Friday, its highest level in three months. August still ended nearly 25 percent higher. What matters more is what that price is holding up against. Gold fell more than 3 percent on Friday, its steepest one-day drop since June, and lost almost 3 percent more on Tuesday, giving back most of the gain from its strongest month since January. The same pressure is weighing on stocks: the US ten-year yield climbed to around 4.79 percent, and higher market rates make anything that pays no interest less appealing. The broader altcoin space held up as well, with ether near 2,400 dollars after gaining more than 30 percent in August.

2. Warsh opens the door to a rate hike at Jackson Hole
Fed chair Kevin Warsh spoke at the annual Jackson Hole symposium for the first time on Friday, and he said what markets had stopped expecting after the weak August jobs number: rates are more likely to go up than down. He acknowledged that this summer’s inflation readings came in better than feared, but said the underlying trend has not improved and that the Fed still has work to do. Bond markets repriced within a day. The two-year yield rose eleven basis points to 4.34 percent, the dollar gained 0.6 percent, and the odds of a September hike jumped from nearly 40 percent to over 65 percent. A cut is all but off the table.

3. Strategy buys bitcoin again after ten weeks
Strategy is back on the buy side. Between August 24 and 30 the company bought 4,603 bitcoin for 369.7 million dollars, at an average of 80,318 dollars each. It is the first purchase since June 22, which ends the longest pause since Strategy adopted this approach in 2020. Over those ten weeks it was selling instead, around 7,000 bitcoin in total, to cover dividends on its preferred stock and buy back its own shares. The purchase was funded by issuing new stock, which raised 602.8 million dollars net. The position now stands at 845,050 bitcoin, roughly 4 percent of everything that will ever exist, at an average cost of 75,412 dollars.

Tim’s take

Two weeks ago bitcoin rose because the dollar weakened, exactly like gold. The US Treasury announced it would step up buybacks of long-dated bonds, and both benefited from the same thinking: money losing value. Warsh largely knocked that down on Friday, and the two have parted ways since. Gold is giving ground again, stocks are drifting under the threat of a rate hike, and crypto is sitting right where it was. That makes crypto the third dog walking off with the bone. The question is whether the idea of bitcoin as a store of value also holds when other markets sink further. If it does, that says more than August’s gain.