"Bitcoin reached its highest point in nearly 20 months, while gold achieved an unprecedented peak on Monday, fueled by intense investor speculation anticipating a decline in interest rates next year, creating ripples across global assets.
On Monday, the cryptocurrency surged beyond $42,000, buoyed by optimism that the industry had weathered the toughest regulatory scrutiny. It later retraced to $41,662, marking a 7.4% increase from the previous day.
Gold experienced a substantial rally, climbing up to 3% to reach $2,135 per troy ounce on Monday, setting a new record before settling at $2,025 per troy ounce, as per LSEG data.
These movements align with a recent surge in stocks and bonds, driven by mounting expectations of an impending reduction in borrowing costs by the Federal Reserve. Despite Chair Jay Powell's assertion that it's "premature" to declare victory over inflation, markets are abuzz with speculation.
Luca Paolini, Chief Strategist at Pictet Asset Management, noted, "You look at bitcoin and gold and you see a very similar kind of evolution. All the asset classes that tend to do well when the Fed cuts rates aggressively are doing well."
Traders are now placing bets on the possibility of the first rate reduction as early as March, following a significant drop in government and corporate borrowing costs. Lower yields on ultra-safe US Treasury debt have increased the attractiveness of other assets. While the S&P 500 index recently closed at its highest level since March 2022, it faced a 0.6% dip midway through Monday's session. Despite falling inflation, recent US economic data continues to bolster risky assets like stocks.
Max Kettner, Chief Multi-Asset Strategist at HSBC, described the current market scenario as an "everyone-is-happy-Goldilocks rally" across virtually all asset classes.
Traders attribute the momentum behind Bitcoin purchases, with its value surging over a fifth in the past month, to growing investor interest after the resolution of two high-profile criminal cases that had loomed over the market for the past year.
In the previous month, the US successfully prosecuted Sam Bankman-Fried, the former CEO of FTX, and Binance, the world's largest crypto exchange. Bankman-Fried faced fraud charges, and Binance paid $4.3 billion in penalties after pleading guilty to charges related to money laundering and financial sanctions breaches.
Despite concerns among traders, US authorities did not shut down Binance, which is currently facing a separate lawsuit from the Securities and Exchange Commission for allegedly violating securities laws."
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