Cryptocurrencies experienced a surge on August 8, 2023, following a temporary slowdown in the wake of the Federal Reserve’s 25 basis point rate hike at the end of July. This surge was largely driven by Moody’s Investor Service’s decision to downgrade 10 small-to-medium-sized lenders and place six other banks on its review list for potential downgrades.
The credit rating agency cited concerns about deposit risk, the possibility of a looming recession, and struggling commercial real estate portfolios as the reasons for the downgrade. In addition, Moody’s changed its rating outlook for 11 banks to negative.
This year, the crypto market has rebounded effectively after a disappointing 2022 that saw a significant drop of more than 65%. The market downturn was primarily triggered by the FTX bankruptcy due to a major fraud and the Tera Luna crash.
However, 2023 has been a positive year for cryptocurrencies, with experts predicting a rally in the second half as macroeconomic conditions improve. Inflation has been steadily declining over the past 12 months, leading the Federal Reserve to reduce the magnitude of its rate hikes. This has worked in favor of the crypto market, as growth assets like consumer discretionary and technology stocks, as well as cryptocurrencies, tend to be adversely affected by higher interest rates.
Cryptocurrencies have been on an upward trajectory since the beginning of the year, but the rally faced a setback at the end of June and early July when the Federal Reserve resumed its rate hike and Fitch Ratings downgraded the U.S. long-term foreign-currency issuer default rating.
However, the recent announcement by Moody’s triggered another rally in the cryptocurrency market, with major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) experiencing significant surges. Cryptocurrencies have gained popularity as an alternative to traditional banking systems.
The growing institutional support for cryptocurrencies, particularly Bitcoin, has played a crucial role in boosting prices. Notably, financial giant BlackRock, Inc. has submitted an application to regulators to create a Bitcoin exchange-traded fund (ETF), which, if approved, could lead to increased involvement from retail investors and expanded institutional support. Other major players such as The Charles Schwab Corporation, Citadel Securities, and Fidelity Digital Assets have also supported the launch of a new cryptocurrency exchange called EDX Markets.
In addition to institutional support, fintech company PayPal Holdings Inc. recently introduced its own cryptocurrency token called PayPal USD, becoming the first major company of its kind to do so.
In terms of potential investments, taking advantage of the current upward trend in cryptocurrencies could be a prudent decision. Companies like Riot Platforms, Inc., which is focused on Bitcoin mining and digital infrastructure, and NVIDIA Corporation, a major player in the semiconductor industry that benefits from a thriving crypto market due to its graphic processing units (GPUs), could provide promising investment opportunities. Coinbase Global, Inc., which provides financial infrastructure and technology to support the global cryptocurrency economy, is also worth considering.
Overall, the surge in cryptocurrencies can be attributed to a combination of factors, including Moody’s downgrade of several lenders, improving macroeconomic conditions, and growing institutional support. As the crypto market continues to evolve, investors may find opportunities for growth and potential returns.
Disclaimer: The information provided here is for informational purposes only and should not be taken as financial advice. It is recommended to conduct thorough research and seek professional advice before making any investment decisions.
