Bitcoin prices rallied today, surpassing $24,000. (Photo Illustration by Mykola Tys/SOPA … [+]
Bitcoin prices climbed today, reaching their highest in more than a week after headline figures showed the world’s largest economy contracted during the second quarter.
The digital currency, the largest by total market value, surpassed $24,000 this afternoon, according to TradingView data.
The cryptocurrency attained an intraday high of $24,198.95, at which point it was up more than 7% from the intraday low of $22,600 it reached close to 8:30 a.m. EDT, additional information from TradingView reveals.
The cryptocurrency dropped to this level at roughly the same time a Bureau of Economic Analysis report estimated that U.S. GDP shrank at an annualized rate of 0.9% during the second quarter.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
After nearing $24,200, bitcoin prices pulled back slightly, but they managed to hold on to most of their recent gains, trading close to $24,135.00 at the time of this writing.
Economic Considerations
This latest BEA data revealed a second consecutive quarter of decline, as the nation’s economy contracted 1.6% during the first three months of this year.
While two back-to-back quarters of shrinking GDP frequently signal a recession, the task of formally declaring such a period of deteriorating business conditions is up to the National Bureau of Economic Research, a nonprofit organization.
The NBER has a Business Cycle Dating Committee, which evaluates various measures of economic activity before determining whether a recession (or expansion) has begun.
While total U.S. economic output has been deteriorating, the nation’s job growth has been strong in recent months, with the labor market creating 372,000 net positions in June, Labor Department figures show.
This healthy increase took place after the nation’s employers added 368,000 net jobs in April and 384,000 in May, additional government data indicates.
This robust data could make NBER economists less likely to declare that the U.S. has in fact entered a recession.
Market participants have been receiving these latest reports on GDP and jobs growth at a time when measures of inflation have been reaching their highest levels in decades, with the nation’s headline consumer price index (CPI) rising 9.1% during the 12 months through June, the sharpest increase in 40 years.
Fed Policy Moves
Federal Reserve policy makers have been pushing benchmark rates higher, a development that could further constrict economic growth by increasing borrowing costs.
The central bank recently increased its federal funds rate 75 basis points, pushing the range to between 2.25% and 2.50%.
Fed officials may very well opt to increase this rate further, as Jerome Powell, chair of the central bank’s Board of Governors, stated yesterday that the institution is “strongly committed” to reducing inflation to its target rate of 2%.
Should the Fed continue to increase the benchmark rate, it could potentially provide tailwinds for bitcoin prices.
If interest-bearing securities pay higher yields, it could make them more compelling to investors, drawing them away from risk-on assets like cryptocurrencies and equities.
If the officials of the central bank continue to engage in aggressive rate hikes, bitcoin could enter uncharted territory, as the digital currency has never existed in a high interest-rate environment.
The first units of bitcoin came into existence in January 2009, and since then, the federal funds rate never reached 3%, according to figures provided by the Federal Reserve Bank of St. Louis.
This era of sustained low interest rates provides a contrast to earlier time periods. The benchmark rate exceeded 5% between 2006 and 2007, 6% in 2000, and 10% in the 1980s.
In 1981, the federal funds rate reached more than 19% as the central bank took steps to to address particularly high inflation.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.
