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The price of bitcoin surged past $44,000 early on Wednesday, reaching levels not seen since the spring of 2022 when the crypto market declined after Terra, a popular stablecoin, lost its peg and the connected Luna cryptocurrency also dropped significantly. This recent surge in crypto prices is due to investor optimism regarding potential interest rate cuts by the Federal Reserve and the potential approval of a bitcoin-focused exchange-traded fund by the Securities and Exchange Commission. Gold prices also rose to a record high but fell the following day, leading supporters of both crypto and precious metals to claim that this could be the beginning of a resurgence in alternative assets.
However, analysts caution investors to be wary of rushing in. Gold doesn’t pay interest, and while it technically hit an all-time high this week, it is still over 20% below the inflation-adjusted peak seen in 1980. According to a recent study by Deutsche Bank, gold has had an inflation-adjusted return of only 0.32% per year since 1800, as compared to much higher returns on Treasuries and equities. As for crypto, despite the buzz around the expected approval of a spot bitcoin ETF by the SEC in January, there’s no guarantee it will send digital currencies soaring or that it will effectively kickstart a new era for alternative assets.
The Fed is likely done hiking interest rates to fight inflation, but there is no indication that it is ready to cut rates anytime soon. And COP28, the annual international climate summit taking place in Dubai, is seeing a significant presence of fossil fuel industry representatives, suggesting that major energy producers are intent on controlling the pace of the green transition, despite criticism from US climate envoys and industry experts. Additionally, new research indicates that aluminum tariffs imposed by the Trump administration have cost the US beer industry nearly $2.2 billion over the last six years, further illustrating the potential consequences of trade policy on various sectors of the economy.
