Bitcoin Rallies Into a New Bull Market. How Crypto Could Beat the S&P 500.

“From a technical perspective, if Bitcoin could close above $26,000, it could signal the beginning of a bull market,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank.

Traders have shaken off headwinds from the collapse of crypto-focused U.S. banks Silvergate and Signature Bank in recent weeks, even as these banking failures risk new regulatory pressures and negative impacts on digital asset market liquidity. Rather, pressure on banks—including the meltdown of Silicon Valley Bank, the largest since the 2008-09 financial crisis—that has come as an unintended consequence of the rapid rise in interest rates over the past year has proven a tailwind.

The Federal Reserve has raised rates dramatically in a bid to get decades-high inflation under control, slamming demand for risk-sensitive assets like stocks and cryptos—and making Bitcoin closely correlated with the

Dow Jones Industrial Average

and

S&P 500.

While traders had assumed the Fed would keep hiking rates in the face of continued rising prices, pressure on banks has spurred an about-face in expectations, with markets now pricing in much more accommodative monetary policy.

“We’re seeing more signs that the Fed will be forced to halt its tightening measures. A reversal or pause by the Fed will buoy risk assets, including Bitcoin,” said Alex Thorn, the head of research at digital asset group Galaxy. “We expect to see significant demand as Bitcoin moves further past $25,000.”

But that doesn’t mean both cryptos and stocks will benefit from this trend. Some investors fear that as the impact of higher rates continues to sweep through the U.S. economy—a process that can take many months—the risk of a slowdown to recessionary levels will rise. While this will hurt corporate earnings and weigh on the major stock indexes, Bitcoin may be more immune, especially if future expectations remain focused on an eventual reversal by the Fed toward lowering rates. Lower rates and easier policy laid the groundwork for Bitcoin’s last bull run.

“As the economy heads towards a recession, the cryptoverse could look more attractive than equities. It appears the downside risks are greater for the S&P 500 than they are for Bitcoin,” said Edward Moya, an analyst at broker Oanda.

Cryptos remain a high-risk asset—but this week bank stocks have behaved that way too—with a laundry list of issues including the regulatory backdrop and investor interest that has waned amid the bear market. But there is at least a logical case for Bitcoin to outperform the stock market. If the rally can continue past $30,000—where Bitcoin fell off a cliff last summer—that case could strengthen.

For now, the technical picture looks positive. 

“Bitcoin is above trading range resistance near $25.2K with short-term momentum to the upside,” wrote Katie Stockton, managing partner at technical research firm Fairlead Strategies. “A breakout would require consecutive weekly ‘closes’ (this Sunday and next Sunday) above resistance and would complete a basing phase in a bullish long-term development. Next resistance is a nearby zone of around $27,300 to $28,200.”

Beyond Bitcoin,

Ether

—the second-largest crypto—advanced 5% to near $1,750. Smaller cryptos, or altcoins, also were in the green, with

Cardano

up 3% and

Polygon

popping 4%. Memecoins exhibited much of the same, as

Dogecoin

jumped 5% and

Shiba Inu

gained 3%.

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