Bitcoin (BTC-USD) spiked by more than 10% on Friday, joining cryptocurrencies in a broad relief rally as investors cheered constructive remarks from officials about the industry's regulation.
Battered by developments in China and a volatile environment for risk appetite, digital currencies had a rough September. However, signals this week from U.S. regulators also appear to have given sentiment a boost, sending Bitcoin to its biggest intraday rally since July.
Other cryptocurrencies like Ethereum (ETH-USD), Cardano (ADA-USD) and Dogecoin (DOGE-USD) followed suit, adding at least 6% on the day.
“Traditionally, with Bitcoin, September is the weakest month, so yes, we’re finally out of September,” CryptosRus Founder George Tung told Yahoo Finance.
"Also there's just a lot going on. Yesterday we had a $3 billion options expiry for Bitcoin," Tung explained. "That could have been holding Bitcoin back this final week but now we're in October and things are looking a whole lot better."
On Wednesday, Securities and Exchange Commission (SEC) Chair Gary Gensler reiterated his support for approving a Bitcoin exchange-traded fund (ETF) for U.S. investors, even as the agency has been criticized for some of its efforts to oversee the crypto industry.
And Federal Reserve Chair Jerome Powell eased fears even more for U.S. crypto asset holders by telling Congress he had "no intention" of banning cryptocurrencies, including stablecoins. However, like Treasury Secretary Janet Yellen, he does see a reason to regulate stablecoins.
With Wall Street indices under pressure, the leap in crypto prices suggested a de-coupling from stocks and other risk-sensitive assets. Last week, digital coins sank alongside stocks on news that Chinese real estate company, Evergrande could be headed for default, or a government bailout.
More uncertainty weighed on the market last Friday, when the Chinese government doubled down on its crypto mining crackdown by outlawing trading in all cryptocurrencies and related services.
"Crypto is rallying today because of regulation," Matthew Hougan Chief Investment Officer of the crypto asset manager, Bitwise, told Yahoo Finance. "We should get used to that sentence because I think you are going to hear it a lot in the next year."
Hougan believes that Powell's clarification, in addition to reports that the Biden administration is looking to regulate stablecoins but not outright ban them, has "salved the market's worst fears about regulatory overreach."
Those fears, Hougan said, have been holding back what would otherwise be a very strong market. "Crypto has so many tailwinds right now: The growth of DeFi, exploding interest in NFTs, the rise of Web 3.0, the entry of institutional investors, surging venture capital investment," said Hougan.
Despite the crypto sector's rapid growth, both traditional U.S. based institutional investors as well as average Americans are still looking for safer opportunities to invest into cryptocurrencies.
Bakkt President Adam White told Yahoo Finance that for many institutional investors, betting on crypto involves "having exposure to assets like bitcoin." Financial offerings like regulated custody for crypto assets and futures allow institutions to ease into the sector in a way that feels familiar and safe, White added.
The ETF factor
A Bitcoin ETF presents even greater access, mostly by deepening the links between cryptocurrencies and the U.S. financial sector.
It could also send BTC on another bullish leap. The benefits of a crypto sector fund are numerous, Gabor Gurbacs, VanEck's Director of Digital Asset Strategy, told Yahoo Finance.
"You basically get the benefits of the US capital markets that are currently not available for Bitcoin and other digital assets," said Gurbacs whose team has worked on launching ETFs for the last five years.
"With a crypto ETF, you get better price transparency, better holdings transparency, straightforward tax documents, more liquidity and protections for us," he added.
Currently, the SEC is reviewing dozens of Bitcoin ETF proposals. Many of their approvals have been pushed to the end of this year.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
READ MORE:
For more information about cryptocurrency, check out:
Dogecoin, what is it? How to buy it
Ethereum: What is it and how do you invest in it?
The top 21 crypto leaders to watch in the back half of 2021
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit