Why Bitcoin Made a Breakthrough on Friday
Key Points
With that, investors piled into relatively risky financial assets.
Exhibit A for this asset class -- cryptocurrencies.
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A sharp easing of geopolitical tensions on Friday led to a relief rally in financial assets considered to be risky. This particularly benefited cryptocurrencies, and even more particularly was a boon for Bitcoin (CRYPTO: BTC). It broke through a fairly narrow range it had been trading in for weeks, and as of 4 P.M. Eastern time that day, it was up by 3% to over $77,000 -- a level it hasn't touched since February.
Less dire Straits?
That morning, both U.S. and Iranian officials announced that the Strait of Hormuz was open, at least for the 10 days of the recently agreed ceasefire between Israel and Lebanon. Although President Trump said the American blockade of the Strait would remain in force, some vessels were confirmed to have transited its waters.
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Image source: Getty Images.
This, plus optimistic pronouncements from both sides, led to widespread hope that the war was nearing an end. That shook out into a sharp decline in oil prices and a rise in those risky asset classes that investors had been avoiding since the start of the conflict.
Since crude oil is used for a variety of purposes worldwide, its cost has a direct impact on the global economy. When prices are high for a sustained period, it tends to push inflation higher, and when that happens, central banks are usually compelled to raise interest rates.
In turn, higher interest rates make safer investments (government bonds, for example) more lucrative and therefore attractive. On the flip side, they drain enthusiasm for risky plays like cryptocurrencies.
Fingers crossed
There's clear momentum and desire on both sides for ending the war, so I think we'll continue to see progress toward a resolution (although it'll likely be of the "two steps forward, one back" variety). Crypto bulls are looking for a reason to enthusiastically buy into coins and tokens, and a peace settlement -- or even an extended ceasefire -- would be an appropriate one.
Given that, we shouldn't be surprised to see a rally in the coming days if true progress is achieved.
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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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