By Tom Wilson, Tom Westbrook and Chibuike Oguh
LONDON/SINGAPORE/NEW YORK (Reuters) -Bitcoin rose on Monday, briefly surpassing $42,000 to reach a 20-month high, in a new surge of momentum fueled by U.S. interest rate cut expectations and traders betting that American regulators will soon approve exchange-traded spot bitcoin funds.
The world's biggest cryptocurrency rose to $42,162, its highest since April 2022, seemingly casting off the gloom that had settled over crypto markets following the collapse of FTX and other crypto-business failures last year. It was up 8.27% at $42,005 as of 20:00 GMT.
Bitcoin's gains lifted the shares of cryptocurrency-related companies, as well as exchange-traded funds (ETFs) listed in the United States.
Coinbase (NASDAQ:COIN) jumped 7% and Microstrategy gained 6.3%, while bitcoin miners such as Riot Platforms (NASDAQ:RIOT), Marathon Digital (NASDAQ:MARA) and CleanSpark (NASDAQ:CLSK) rose between 7% and 13%. Last week, Microstrategy disclosed it bought an additional $593 million in bitcoin during November.
The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, rose 7.5%, while the ProShares Short Bitcoin Strategy ETF that allows traders to bet on a fall in bitcoin futures dropped 7.5%.
Bitcoin's "remarkable ascent" can be attributed to a "confluence of factors" that were buoying sentiment, Luuk Strijers, chief commercial officer of crypto derivatives exchange Deribit, wrote in a note on Monday.
He cited widespread optimism that the U.S. securities regulator may soon approve a spot bitcoin ETF, which would throw open the bitcoin market to millions more investors. Abating inflation would lead central banks to begin easing rate hikes, making riskier assets more attractive, he said, and noted a steady increase in institutional engagement.
Bitcoin is up by more than 150% so far this year.
Riskier investments and other interest-rate sensitive assets, such as gold, have also rallied hard over the last few weeks as markets wager that the U.S. Federal Reserve has finished hiking rates and will start cutting early in 2024.
Reports in October that the U.S. Securities and Exchange Commission (SEC) would not appeal a court ruling that the agency had been wrong to reject its spot bitcoin ETF application have also driven bets that an eventual approval is near.
SEC Chair Gary Gensler said in October the agency's commissioners would potentially consider as many as 10 bitcoin ETF filings, but could not provide guidance on timing.
A spot bitcoin ETF could allow previously wary investors access to crypto via the tightly regulated stock market. Demand is expected to be as much as $3 billion in the first few days of trading, and pull in billions more thereafter.
Investors are confident the SEC could approve multiple spot bitcoin ETFs as early as January, based on key public SEC filing and comment deadlines, Matteo Greco, research analyst at digital asset investment firm Fineqia International, wrote in a note.
"An approval is expected to bring short-term capital influx from the traditional finance investors."
Investors have also welcomed the settlement of a years-long U.S. criminal probe into Binance, the world's largest crypto exchange and a key cog in the worldwide crypto market.
The deal, in which Binance founder Changpeng Zhao stepped down after pleading guilty to breaking U.S. anti-money laundering laws, allows the company to continue operating.
Ether, the coin linked to the Ethereum blockchain network, rose more than 6% on Monday, hitting $2,274.88.
Both bitcoin and ether remain far below their 2021 record highs of $69,000 and $4,868, respectively.