The cryptocurrency market is experiencing a lull, with Bitcoin stuck under $70,000. The largest crypto has been ranging these past few months due to a lack of enthusiasm, activity, and narrative. As a result, altcoins aren’t doing much, either.
But this isn’t anything new, as summer tends to be boring. However, as per crypto data provider Kaiko, “historically, Q3 has had the lowest volume by a significant margin.” But things could be different this time, with Spot Bitcoin ETFs trading in the US and BlackRock’s IBIT attracting hundreds of institutional investors. As a result of this, the share of USD crypto volume has surged from 30% in Sept. 2023 to 50% in May.
But then, this also means there’s now more interconnectedness between crypto and the traditional financial (TradFi) market, which points to macro playing an even bigger role in the cryptocurrency sector.
Interestingly, the US stock market has been enjoying new highs all this time, unlike crypto, which has been stuck despite the improving inflation data.
This week, several reports showed a better US economic condition, with the annual inflation coming in at 3.3%, the lowest in over three years since April 2021. The Producer Price Index (PPI) has also posted lower numbers than the previous month at 2.2%. All these factors paint a bullish picture for BTC, according to Bitfinex’s research team, which noted that “the overall trend could remain positive, especially if the broader economic outlook continues to improve.”
While low, inflation is still far greater than the central bank’s 2% target. As such, the Federal Reserve kept interest rates unchanged in the 5.25%-5.50% range. These are the lending rates at which banks make short-term loans to each other and have a significant impact on the financial system.
Bitcoin dropped on this news and soon returned to its previous levels. However, the sideways market has BTC prices oscillating in a range.
High rates, technically, aren’t good for risky assets as they make cash and bonds attractive to hold and present a challenge for the economy by slowing down business activity. In contrast, lower rates stimulate investment and are good for risky assets like crypto and stocks, as has been the case during the last bull cycle.
In 2020, as the pandemic spread across the globe, the Fed cut rates, and until 1Q22, interest rate cuts were virtually zero. The subsequent increase in rates by the central bank crashed the crypto market, which saw BTC and ETH lose more than 75% of their value while the majority of altcoins were down over 90%.
But as we have seen since 3Q23, the crypto market has been making a recovery. Bitcoin hit a new all-time high (ATH) thanks to ETF approval and the halving event.
Also, during this time, while the stock market has also been surging, 10-year Treasury yields saw a decline. From a 4.98% high in Oct 2023, the yield dropped to 3.78% at the end of the year and is currently at 4.2%, down from 4.7% late in April. So, while Fed rates have been an important factor, it isn’t a determining one for stocks and crypto.
“High inflation actually brings down the purchasing power of fiat currency like USD, which is exactly what Bitcoin protects people from. BTC’s limited supply and the quadrennial supply shock (halving) boost its price, which makes it a perfect store of value and the reasons why countries like Turkey, Argentina, Nigeria, Lebanon, and Zimbabwe have been seeing high Bitcoin adoption,” said Ape Terminal Founder Hatu Sheikh.
In the US, experts also worry about the record $34.68 trillion national debt. Then there’s the report from consulting firm Klaros Group, which has found hundreds of banks facing a risk of failure.
“So, while Bitcoin’s future is bright and bullish, in the near term, we should continue to consolidate around current levels and may see some dips that can be utilized to prepare for a market-wide rally,” said Hatu Sheikh.
Besides the macro, the 140,000 BTC worth over $9 bln to be paid out by the defunct crypto exchange Mt. Gox to the creditors is a big event that’ll affect the crypto market. While some creditors may choose to sell their holdings, the 30% increase in BTC’s market depth, which is back to pre-FTX collapse levels, may help mitigate potential price fluctuations.
Meanwhile, on the bullish side, some big events involve Ethereum ETF approval, which US SEC Chairman Gary Gensler recently said could come by the end of the summer, 2024 Presidential candidate Donald Trump offering his support to Bitcoin and crypto, and rate cuts later in the year; all of which can see prices go on to make new highs.
Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.