The cryptocurrency stocks were up on Thursday as investors reacted to various causes in U.S. monetary markets and Washington’s new emphasis on the regulation of cryptocurrencies. The rally followed the U.S. Treasury Department’s announcement that it would expand digital asset bond buybacks to larger durations, and President Donald Trump has urged Congress to pass legislation to establish more definite guidelines for digital assets. The developments provided a welcome boost to investors who have stepped back from risk assets due to poor returns over the past few weeks.
Because recently the long term yields of the U.S. government bonds had risen significantly. After a big sell-off in the bond market, the yield on the 30 year Treasury note hit the highest level since 2007. Increased bond yields can make it more challenging for cryptocurrencies and other risk-sensitive investments to perform, as safer assets gain more appeal when they are yielding higher returns. The policy change from the Treasury therefore helped to remove some pressure out of markets, although that intervention was relatively small.
This doubling in the size of some Treasury buyback operations, to at least $4 billion, was the move. The Treasury’s decision to buy more long-dated government debt helped a little to steady the bond market, amid rising yields, and was a selling opportunity for those who had bet on the bonds to drop. In turn, the sharp rise in bond sentiment was conducive to a more favorable overall tone for purchasing assets that are sensitive to financial conditions.
The reaction of cryptocurrency investors was apparent. Bitcoin rose 3.48% to approximately $71,500 for the first time since June, surpassing the $70,000 mark. The increase was significant with Bitcoin’s rough year. Even with the recent recovery, the cryptocurrency is still around 18% off its year-to-date levels and 43% lower than its all-time high point in October.
Short covering was also cited as a key driver of the rapid pullback rally as well. Bitcoin and other digital assets have oscillated for weeks in a fairly small range, leaving some investors with room to fall further. Once prices started to rally, short sellers had to cover their short positions, providing further buying pressure. This can fuel a rally as short sellers need to buy the asset that they sold in order to close their positions.
The rally (in crypto) was then fueled by a wave of short-covering, after weeks of extremely narrow trading, said Alex Kuptsikevich, the chief market analyst of brokerage FxPro, in a research note.
This increase in sentiment wasn’t just for Bitcoin. The second largest cryptocurrency by market value, Ether, rose 2.46% and was trading at $2,272 for the first time in over three months. The positive gains indicated that bitcoin investors were willing to re-enter the market as a whole, and not just the bitcoin space.
The change in sentiment also had a positive effect on crypto related firms. The shares of Coinbase Global surged 6.05%, while Strategy, which has significant bitcoin exposure, ticked up 4%. Canaan, a bitcoins mining machine maker, surged 10.37%. USDC, the stablecoin of its namesake, increased by 3.8%, while Robinhood, a popular trading platform for retail investors, gained 0.42%.
In addition, the market’s bullish mood was attributed to the renewed political interest in regulating cryptocurrencies. President Trump has repeatedly stated that the United States could be a world hub for digital assets, and his administration has helped facilitate a more transparent regulatory environment for digital assets. During a meeting with cryptocurrency executives in the White House on Wednesday, Trump urged Congress to pass what he called a “fair version of the Clarity Act.”
The proposed legislation has garnered a lot of interest from the crypto sector, as uncertainty about the rules has been one of their primary concerns. Disagreements on classification of different digital assets can lead to uncertainty for companies, investors and regulators at this time. The Clarity Act aims to give greater clarity to the question of whether specific cryptocurrencies are securities versus commodities, and clarify the agency responsibilities between the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Trump’s comments (Wednesday) are “incrementally positive” in the sense that they indicated the White House was applying “more” pressure on Congress to move the bill, U.S. Tiger Securities analyst Bo Pei said.
Clearer rules might make it simpler for cryptocurrency companies to plan investments, launch merchandise and operate inside the U.S. monetary system. Few people doubt that a new regulatory framework would foster innovation and alleviate years of uncertainty over the industry. U.S.-based crypto companies would be more appealing to investors, especially those institutions wary of investing with the rules still in flux.
