Markets
Bitcoin Skies Remain Blue Behind German Sales, Mt. Gox Refunds
It may seem like the cryptocurrency market is going through turbulent times. Bitcoin in Germany (BTC) Sales and fears of massive liquidations by the disappeared stock exchanges Mt. Gox CreditorsHowever, beyond these supply surpluses, the outlook is promising, supported by favourable macroeconomic factors and sustained risk-taking in traditional markets.
BTC, the leading cryptocurrency by market capitalization, has fallen more than 17% to $57,200 in four weeks, triggering a rout in meme coins, digital assets supposedly linked to artificial intelligence (AI), and other risky segments of the cryptocurrency market. CoinDesk Data to show.
The overall picture remains bullish, however, meaning that once the excess supply from Germany and Mt. Gox creditors dries up, the market could see an impressive recovery.
Investors are generally more willing to put their money into risky, growth-sensitive assets, such as bitcoin and stocks, during periods of global economic expansion.
The G7, an informal group of advanced economies, is currently going through an expansion phase of the economic cycle in a context of high interest rates, according to the composite leading indicator of the Organisation for Economic Co-operation and Development (OECD).
The indicator, which assesses the short-term economic outlook for a group of major nations, has risen above 100, indicating above-trend growth and acceleration, according to TS Lombard.
The U.S. Bureau of Labor Statistics’ June consumer price index (CPI) report, due Thursday, is expected to show that the cost of living rose 3.1% over the year, slowing from May’s 3.3% annual increase, according to a survey of economists conducted 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 cut benchmark borrowing costs this year.
Further rate cuts could further catalyze demand for risk assets, including bitcoin. Year-to-date CPI figures have been weaker than expected galvanized the contributions in Bitcoin Spot ETFs, increasing the market value of the cryptocurrency.
“We expect headline CPI to rise 0.1% m/m, partly due to a further decline in energy prices. This would push the rate down one-tenth year-over-year to 3.2% and the NSA index to 314.770. At the same time, we expect core CPI to rise 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 would maintain our expectation that the Fed would begin its rate-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 is on the upside as Wall Street remains anchored in a wave of tech optimism, as evidenced by new record highs in the ratio of its tech-heavy Nasdaq Index (NDX) to the broader S&P 500 Index (SPX).
Since the beginning of 2017, bitcoin has were moving at a walking pace with the NDX/SPX ratio, which experiences strong increases during periods of relative outperformance of technology stocks.
Moreover, social media concerns about a potential collapse in US stocks, adding to downward pressure 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 in US equity markets. However, unlike previous bubble episodes (including 2020-21), margin debt is increasing less than market capitalisation. Rather than being a driver of equity performance, this is likely a consequence. This is not surprising given the current high level of interest rates, which is not conducive to increasing leverage,” TS Lombard said in its July client note.
“Another sign that the U.S. stock market is not in bubble territory is investor positioning, which is close to neutral on S&P 500 and Nasdaq futures,” Lombard added.
Gold has also remained stable of late, a sign that the macroeconomic picture is supportive of assets with alternative investment appeal like bitcoin.
Finally, past data shows that months after the halving, rewards are optimistic and characterized by double-digit price corrections. The Bitcoin blockchain underwent its fourth halving in April this year.