Bitcoin
Bitcoin skies remain blue on the back of Germany sell-offs and Mt. Gox refunds
It may seem like turbulent times in the cryptocurrency market amid Bitcoin from Germany (BTC) sales and fears about mass liquidations of defunct exchanges Mt. Gox Creditors. However, looking beyond these supply gluts reveals a promising outlook, underpinned by favorable macroeconomic factors and sustained risk-taking in traditional markets.
BTC, the top cryptocurrency by market value, has fallen more than 17% to $57,200 in four weeks, sending meme coins, digital assets purportedly tied to artificial intelligence (AI) and other risky corners of the crypto market into a tailspin. CoinDesk Data Show.
The overall picture, however, remains bullish, meaning that once the supply glut from Germany and Mt. Gox creditors is gone, the market could stage an impressive recovery.
Investors generally show a greater willingness to invest money in risky and growth-sensitive assets, such as bitcoin and stocks, during periods of global economic expansion.
The G-7, an informal grouping of advanced economies, is currently experiencing an expansionary phase of the economic cycle amid high interest rates, according to the Organisation for Economic Co-operation and Development (OECD) composite headline indicator.
The indicator, which measures the short-term economic outlook for a group of major nations, has surpassed 100 and is rising, indicating above-trend growth and acceleration, according to TS Lombard.
The U.S. Bureau of Labor Statistics’ June consumer price index (CPI) report, due out Thursday, is expected to show the cost of living rose 3.1% over the year, slowing from a 3.3% annual increase in May, according to a survey of economists by The Wall Street Journal.
The expected slowdown would imply continued progress toward the Fed’s 2% target, strengthening the case for the central bank to start lowering benchmark borrowing costs this year.
Further rate cuts could further catalyze demand for risk assets, including bitcoin. Weaker-than-expected CPI prints since the start of this year have galvanized inputs in spot bitcoin ETFs, increasing the market value of the cryptocurrency.
“We forecast core CPI rose 0.1% m/m due in part to another drop in energy prices. This would result in the y/y rate falling a tenth to 3.2% and the NSA index reading 314.770. Meanwhile, we expect core CPI to have increased 0.2% m/m,” BofA economists said in a July 5 note to clients.
“If the CPI report is in line with our expectations, we will maintain our expectations that the Fed will start its cutting cycle in December,” the economists added, saying a core CPI of 0.2% m/m would increase the chances of an early rate cut.
The path of least resistance for bitcoin lies on the higher side as Wall Street remains entrenched in a wave of tech optimism, as evidenced by new record highs in the ratio of its tech-heavy Nasdaq (NDX) index to the broader S&P 500 (SPX).
Since the beginning of 2017, bitcoin has moved in sync with the NDX/SPX ratio making strong gains during periods of relatively outperformance by technology stocks.
Furthermore, social media concerns about a potential collapse in US stocks, adding to downward pressures on other risk assets, may be unfounded, as the stock market does not appear to be in a bubble.
“Whenever US margin debt increases, we hear calls for a bubble forming in US equity markets. However, unlike previous bubble episodes (including 2020-21), margin debt is growing at a slower rate than equity market capitalization. Rather than being a driver of equity performance, it is likely a consequence. This is not surprising given the current high level of interest rates, which is not conducive to leverage increases,” TS Lombard said in a July note to clients.
“Another indication that the US stock market is not in bubble territory is investor positioning, which is close to neutral on both the S&P 500 and Nasdaq futures,” Lombard added.
Gold has also held steady recently, a sign that the macroeconomic outlook is favorable for assets with alternative investment appeal, such as bitcoin.
Finally, previous data shows that months after the rewards halving are optimistic and characterized by double-digit price corrections. The Bitcoin blockchain underwent its fourth halving in April this year.