Bitcoin Retreats to Start the Week. This Could Restart the Crypto Rally.

Multiple factors have supported gains in crypto prices, including optimism that U.S. regulators will soon approve the first spot Bitcoin exchange-traded fund (ETF), which would be expected to usher in a fresh wave of investor interest. The improving macroeconomic backdrop—with expectations that the Fed will cut interest rates multiple times next year—and historically tight token supply also have helped.

Like the

Dow Jones Industrial Average

and

S&P 500,

Bitcoin has benefited from macro tailwinds as waning inflation and slowing growth support the prospect of rates coming down significantly next year from a generational peak. That’s why the latest Fed monetary policy meeting this week, on Tuesday and Wednesday, looms large.

While markets don’t expect the central bank to lower borrowing costs this month, the press conference from Fed Chairman Jerome Powell will be scrutinized for signs of rate-cut timing, with traders current pricing in the first cut as soon as March. Any dovish commentary from Powell, or indications that rates could be lowered sooner rather than later, has the potential to restart the crypto rally in the absence of other major catalysts such as spot Bitcoin ETF news.

Beyond Bitcoin,

Ether

—the second-largest crypto—fell 4% to below $2,250. Smaller tokens or altcoins were also weak, with

Cardano

down 5% and

Polygon

plunging 5%. Memecoins, too, fell, with

Dogecoin

dropping 2% and

Shiba Inu

shedding 4%.

Write to Jack Denton at jack.denton@barrons.com