It may look like turbulent times for the crypto market amid Germany’s Bitcoin (BTC) selloff and fears of mass liquidations by creditors of defunct exchange Mt. Gox. However, looking past these supply overhangs reveals a promising outlook, supported by supportive macroeconomic factors and continued risk-taking in traditional markets.
BTC, the leading cryptocurrency by market value, fell more than 17% to $57,200 in four weeks, driven by meme coins, digital assets purportedly linked to artificial intelligence (AI) and other risky corners of the crypto market, CoinDesk data shows. .
However, the overall picture remains bullish, meaning that once bid overhangs from Germany and lenders Mt.
Investors are typically more willing to put money into growth-sensitive risk 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 business cycle amid rising interest rates, according to the Organization for Economic Co-operation and Development (OECD) composite leading indicator.
The indicator, which measures the short-term economic outlook for a group of major nations, has crossed 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 Thursday, is expected to show that the cost of living rose 3.1% year-over-year, a slowdown from May’s 3.3% year-over-year increase . economists from The Wall Street Journal.
The expected slowdown would mark continued progress toward the Fed’s 2% target, strengthening the case for the central bank to start cutting benchmark borrowing costs this year.
A renewed rate cut could further catalyze demand for risk assets, including bitcoin. Since the start of this year, weaker-than-expected CPI prints have galvanized inflows into spot bitcoin ETFs, boosting the cryptocurrency’s market value.
“We expect headline CPI to rise by 0.1% m/m in part due to further declines in energy prices. This would lead to a decline in the year-on-year pace of a tenth to 3.2% and a print NSA index of 314.770. Meanwhile, we expect core CPI to rise by 0 .2% m/m,” BofA economists said in a July 5 note to clients.
“If the CPI report were to print in line with our expectations, we would maintain our expectation that the Fed will begin its tapering cycle in December,” the economists added, adding that the 0.2% m/m core CPI would raise the chances of an early rate cut . .
The path of least resistance for bitcoin is on the higher side as Wall Street remains entrenched in a wave of tech optimism, evidenced by fresh record highs in the ratio of its tech-heavy Nasdaq ( NDX ) to the broader S&P 500 ( SPX ).
Since the start of 2017, Bitcoin has moved closely with the NDX to SPX ratio, seeing sharp gains during periods of relative outperformance in tech stocks.
Furthermore, social media concerns about a potential crash in US stocks adding downward pressures in other risk assets may be unfounded as the stock market does not appear to be in a bubble.
“Whenever U.S. margin debt increases, we hear calls for a bubble forming in U.S. equity markets. However, unlike previous bubble episodes (including 2020-21), margin debt is growing less than equity market capitalization. Rather than was a driver Given the current high level of interest rates, which is not conducive to increasing leverage, this is likely to be a consequence, this is likely to be a consequence, TS Lombard said in a July note to clients.
“Another indication that the U.S. stock market is not in bubble territory is the near-neutral investor position on both the S&P 500 and Nasdaq futures,” Lombard added.
Gold has also been flat of late, a sign that the macro picture is supporting assets with attractive alternative investments such as Bitcoin.
Finally, past data shows that the months after reward halving are bullish and characterized by double-digit price corrections. The Bitcoin blockchain underwent its fourth halving in April this year.