Bitcoin (BTC) has been experiencing a volatile market, with its price falling by 8.8% to nearly $95,000 last week. This significant drop is the biggest percentage decrease since August, according to data sources TradingView and CoinDesk Indices.
Market Sentiment Affected by Federal Reserve’s Rate Projections
The Federal Reserve recently signaled fewer rate cuts for next year while emphasizing that it is prohibited from holding BTC and does not seek a change in the law to do so. This hawkish rate projection has caused concern among investors, leading to a 2% drop in the S&P 500 and a 0.8% gain in the dollar index.
Risk-Off Mood Persists Due to Financial Conditions Tightening
Andre Dragosch, director and head of research Europe at Bitwise, believes that the risk-off mood may persist for some time due to financial conditions continuing to tighten despite three consecutive rate cuts since September. Dragosch emphasized that real-time measures of consumer price inflation have re-accelerated over the past months.
BTC Price Rally in Late July: A Buying Opportunity?
Dragosch, one of the few observers who correctly predicted a massive BTC price rally in late July when sentiment was hardly bullish, believes that we may see more pain in the coming weeks. However, he also sees this as an interesting buying opportunity given the ongoing tailwinds provided by the BTC supply deficit.
Hardening Treasury Yields and Stronger Dollar Deter Capital Inflows
The hardening of Treasury yields, representing higher borrowing costs and relative attractiveness of fixed-income investments, typically leads to outflow from riskier assets like cryptocurrencies and stocks. A stronger dollar also makes USD-based assets expensive, discouraging capital inflows.
Inflation Following the 1970s Model?
Dragosch notes that sticky CPI inflation readings in recent months have raised concerns at the Fed about a potential second wave of inflation. This has led to a more cautious stance on rate cuts.
The Double Hump Scenario and Revival of the 70s Twin Peak in Inflation
The scenario where the Fed is scared of a double hump in inflation, similar to what happened in the 1970s, is a possibility that Dragosch believes. He thinks that this could be why Powell may do too little/too late.
More Pain Ahead for BTC in the Coming Weeks?
Dragosch’s analysis suggests that there will be more pain ahead for BTC in the coming weeks due to the risk-off mood persisting and financial conditions continuing to tighten.
Key Points:
- Bitcoin fell 8.8% to nearly $95,000 last week.
- The Federal Reserve signaled fewer rate cuts for next year while emphasizing its prohibition on holding BTC.
- Andre Dragosch believes that there will be more pain in the coming weeks due to financial conditions continuing to tighten.
- The hardening of Treasury yields and stronger dollar deter capital inflows into riskier assets like cryptocurrencies.
Conclusions:
Dragosch’s cautious outlook for Bitcoin is based on his analysis of market trends and economic indicators. His emphasis on the ongoing tailwinds provided by the BTC supply deficit suggests that there may be opportunities to buy BTC at lower prices in the coming weeks.
Recommendations:
- Investors who are long on BTC should consider hedging their positions against potential losses.
- Those looking to invest in cryptocurrencies should monitor market trends and economic indicators before making a decision.
