Why are Bitcoin, Ethereum, and Dogecoin leaping higher today?

Cryptocurrencies have enjoyed a nice week along with stocks.

| More on:
Three businesspeople leap high with the CBD in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Cryptocurrencies continued their ascent this morning, as bond yields dropped and investors got more optimistic about the trajectory of interest rates. There has also been an apparent short squeeze this week for several prominent cryptocurrencies.

Over the last 24 hours, the prices of Bitcoin (CRYPTO: BTC)Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) had all made significant gains.

The price of Bitcoin traded roughly 6.6% higher and hovered around $20,777 as of 10:26 a.m. ET today. The price of Ethereum traded roughly 13.4% higher, and the price of Dogecoin was up 10.4%.

So what

Cryptocurrencies have been crushed all year long because of the Federal Reserve's aggressive interest rate hikes, which have led to surging bond yields as well.

But this week, bond yields have receded some, with the yield on the 10-year U.S. Treasury bill coming down from above 4.2 percentage points earlier this week to just above 4 percentage points as of this writing.

That has buoyed stocks and cryptocurrencies, as investors get hopeful that perhaps the bulk of the Fed's rate hikes will soon be at an end. 

But in other news, there have been reports of a big short squeeze that has driven the recent gains of Bitcoin and Ethereum. CoinDesk reported that major exchanges have seen some of the largest liquidations of short positions since the middle of 2021.

The large crypto exchange FTX reportedly saw $745 million in liquidations of short positions across all tokens on its platform over the last day, while there were $908 million of short liquidations reported on all major exchanges within the last 24 hours.

During a short squeeze, the price of a stock, or in this case a cryptocurrency, moves higher, in which investors shorting the stock either decide or are forced to cover their position by buying shares of the asset, which in turn drives the price higher. Still, not all are convinced that this will lead to a sustained rally or that the pressure on riskier assets is done just yet.

"I still remain bearish in the short term, as we still need to have more visibility on signs that indicate that inflation is cooling down," Pablo Jodar of the financial services firm GenTwo told CoinDesk.

He added: "After yesterday's Alphabet earnings release, futures are already down. I won't be surprised if bitcoin goes down back to $19,000 in the following days."

Now what

It's certainly been an interesting last few weeks for stocks and cryptocurrencies. After September inflation data came in worse than expected and did not show any signs of inflation subsiding, stocks and cryptocurrencies surprisingly moved higher. 

Perhaps investors are adapting to the current environment and becoming accustomed to the Fed's rapid interest rates, but I would also agree with Jodar that investors still need to see clearer signs of inflation peaking. Until there is proof that the pace of inflation is slowing, the Fed will have to stay aggressive.

The only good news is that based on current projections, the Fed could in theory be done with almost all of its rate hikes by the end of the year.

While the near term remains uncertain, I like Bitcoin and Ethereum long-term and still have no interest in the meme token Dogecoin due to its lack of real-world utility and the lack of technical advantages of its network.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Bitcoin, and Ethereum. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man wearing a suit and holding an EV charger gives the thumbs up.
International Stock News

Why Tesla stock popped ahead of earnings day

Investors will soon see what Tesla's surprising Q2 sales volume means for the bottom line.

Read more »

A little Asian girl is so excited by the bubbles coming out of her bubble machine.
International Stock News

Opinion: This Nvidia forecast all but confirms that the artificial intelligence (AI) bubble will burst sooner rather than later

Nvidia's gross margin guidance points to pricing pressures that may signal an end to the irrational exuberance surrounding artificial intelligence…

Read more »

Hands reaching high for a trophy with a sunset in the background.
International Stock News

Is it too late to buy Nvidia stock in the second half of 2024?

The company has suffered from a recent sell-off, but maintains massive long-term potential.

Read more »

A white EV car and an electric vehicle pump with green highlighted swirls representing ASX lithium shares
International Stock News

Why Tesla could be the best 'Magnificent Seven' stock to own in the second half of 2024

Tesla's stock has been rallying of late, and there could be more gains to come in the weeks and months…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
International Stock News

The CEO of Nvidia just sold 700,000 shares of his company's stock. Here's what investors need to know

What could it mean?

Read more »

A man in a business suit peers through binoculars as two businesswomen stand beside him looking straight ahead at the camera.
International Stock News

Where will Nvidia stock be in 1 year?

You might be late to the party.

Read more »

asx share price boosted by us investment represented by hand waving US flag across winning athlete
International Stock News

Is it too late for ASX investors to start buying US shares?

Should ASX investors start taking the gains from US shares like Nvidia off the table?

Read more »

A US flag behind a graph, indicating investment in US shares
International Stock News

Which US shares are ASX investors buying in 2024?

The ASX's most popular US shares contain some familiar names...

Read more »