Bitcoin's 8% Rally This Past Week Is Being Powered By 2 Catalysts Investors May Not Be Paying Enough Attention To

Bitcoin (CRYPTO: BTC) has put forward a very impressive showing over the past week, surging 8.3% since last Friday's close at 4:00 p.m. ET. Of course, this rally was off a very low base, with the world's largest cryptocurrency dropping precipitously from a recent all-time high of over $126,000 per token on Oct. 6.

There are many reasons why investors may have felt comfortable investing in Bitcoin after its recent drop of more than 25% from its peak to recent lows below $90,000 per token. Of course, shifting investor sentiment across all risk assets has a significant impact on this move, with the macro environment for other AI-related growth stocks (and the NASDAQ overall) improving considerably over the past week.

That said, let's dive into some token-specific catalysts investors appear to be honing in on that may be more important than the macro story right now.

Rate cut expectations, cyclicality are key factors that market experts are watching

Source: Getty Images.

Perhaps the most notable change in the macroeconomic environment over the past week has been quickly shifting interest rate cut probabilities. Market participants are now broadly pricing in an approximately 87% chance of a 25 basis point (0.25%) cut to the Federal Funds rate at the Federal Reserve's upcoming meeting in 12 days. That's a stark shift from a 30% probability of the same-sized cut, just one week ago.

Lower interest rates generally provide a positive catalyst for commodities and other alternative assets, such as Bitcoin, which are priced in U.S. dollars. Any broad-based weakening of the U.S. dollar could provide a boon to risk assets, given that a lower discount rate makes future cash flows more valuable. That's great for tech stocks, which have future cash flows to rely on. For Bitcoin investors, the relatively high correlation between Bitcoin and higher-growth equities, such as tech stocks, provides the key link many are pointing to as reasons to buy Bitcoin on this dip.

Another intriguing upside catalyst comes from BTIG's Jonathan Krinsky, who recently issued a note citing Bitcoin's historical cyclicality and the fact that we're nearing a bottom typically seen in Bitcoin in the fourth quarter. Bitcoin typically rallies from this bottom into year-end, and if that correlation holds this year, we could be due for a rally above $100,000.

I'm still bullish on Bitcoin in the long term, and Krinsky's logic certainly makes sense. Cryptocurrencies are inherently difficult to value, and determining whether they're a good buy at any point during the year really comes down to a range of qualitative factors that are difficult to parse through. However, given the balance of risks and upside potential for Bitcoin, I do think there's something to this rally. I will be watching how Bitcoin performs closely from here.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.