Bitcoin and ether rally hinges on US economic policy's ability to restrain dollar strength, analysts say

Bitcoin BTC +3.38% and ether have both rallied back above the $59,000 and $3,000 marks, respectively, according to The Block's Prices Page .

The largest digital asset by market cap increased by over 4.3% in the past 24 hours, now changing hands for $59,233 at 12:03 p.m. ET, according to The Block's Price Page .  The price of  ether has increased by 4% to $2,994 in the same period. The global cryptocurrency market cap today is $2.34 trillion, a 3.7% increase in the last 24 hours, according to Coingecko data .

Policy decisions that could boost risk-on sentiment

According to QCP Capital analysts, two U.S. economic policy decisions could nurture risk-on sentiment in the market, benefiting assets such as bitcoin and ether. One decision cited in Thursday's QCP Capital report was Federal Reserve Chair Powell's post-rate decision speech, during which he announced the reduction of Quantitative Tightening (QT) from $60 billion monthly to $25 billion.

The analysts also pointed to the Quarterly Refund Announcement (QRA), where the Treasury said it would keep issuances for longer maturities unchanged, reducing fears of a spike in longer-term yields.

"This should help to push down the dollar rally which is positive for risk assets, possibly causing bitcoin to have bounced off the $56,500 low and has decisively broke above $58,000, also ether has rallied close to $3,000 again," the analysts said. A strong dollar can deter investment in risk assets — like bitcoin — as it prompts investors to seek higher returns on bonds and term deposits, thereby boosting demand for the dollar overall.

Bitcoin's outlook for May

Bitfinex analysts emphasized bitcoin's ongoing role as the primary price barometer for the crypto market in May and its pivotal position as a leading indicator for the overall market cap of the asset class as a whole. 

"We expect bitcoin to continue being the price action benchmark for the crypto market in May and the leading indicator for the entire market cap of asset class," Bitfinex analysts told The Block.

The analysts observed a growing correlation between bitcoin and traditional financial market indicators, particularly as more financial institutions integrate cryptocurrency into their portfolios. "As a consequence, we expect that in the short term, the economic environment will have a significant impact on crypto asset values," the analysts said.

While acknowledging the absence of imminent rate cuts after Wednesday's FOMC meeting, the Bitfinex analysts expressed confidence in the current economic environment's resilience. "The economic environment today is remarkably resilient, and our belief is that, in general, consumers and businesses are better prepared and informed of the condition of the underlying economy than they have been in previous cycles," they said.

Looking ahead, the analysts forecasted a period of consolidation for bitcoin prices over the next one to two months, with trading expected to occur within a defined range while experiencing swings of up to $10,000 in either direction.