Bitcoin bulls may be back in business. While the cryptocurrency has seen lackluster performance recently, a prominent analyst believes it could be on the verge of a significant rally, potentially reaching new all-time highs in the coming months.
This bullish prediction comes on the heels of a key economic data release – the consumer-price index (CPI) report. The data, released in July 2024, showed a welcome slowdown in U.S. inflation, with the CPI falling 0.1% after remaining stagnant the previous month. This marks the first decline in the index since May 2020.
According to Matt Hougan, Chief Investment Officer at Bitwise, the CPI data presents a “direct, immediate catalyst” for the cryptocurrency market. He reasons that cooling inflation increases the likelihood of the Federal Reserve implementing rate cuts, potentially multiple times this year.
Investor Sentiment Shift: From Inflation Hedge to Rate-Cut Beneficiary
Investors have traditionally viewed bitcoin as a risky asset, often correlated with global liquidity. A looser monetary policy from the Fed, signaled by the easing inflation data, could significantly impact the cryptocurrency’s price. Hougan now expects Bitcoin (BTCUSD) to challenge its all-time high of $73,798, set in March 2024, within the next few weeks or months.
This optimism is reflected in the futures market. Fed-funds futures traders are currently pricing in an 84.6% chance of a Fed rate cut in September, a significant increase from the 69.7% probability just a day prior. Analysts at QCP Capital note that while this optimism has fueled a recent rally in the stock market, it hasn’t yet been fully priced into the crypto market.
Bitcoin Price Pressures Abating?
Bitcoin’s recent weakness can be partially attributed to concerns surrounding potential selling from two sources: creditors of the bankrupt Mt. Gox exchange and government authorities disposing of seized cryptocurrencies. However, Hougan believes the German government’s bitcoin sales are nearing completion, and the positive CPI data could help crypto investors “put those short-term pressures behind them.”
This perspective marks a shift from the narrative previously promoted by some bitcoin proponents who positioned it as a hedge against inflation. However, Will McDonough, Chairman and Founder of Corestone Capital, argues that bitcoin’s recent price action hasn’t been heavily influenced by macroeconomic factors. He observes a lower correlation between bitcoin and stocks this year compared to previous periods. This, McDonough suggests, reflects a changing demographic of bitcoin market participants.
Previously, macro traders dominated bitcoin price movements, while long-term investors held onto their holdings. Today, the price appears more driven by the supply-and-demand dynamic between new buyers, who can now access bitcoin through exchange-traded funds (ETFs), and sellers like the Mt. Gox creditors and the German government.
Key Takeaways
- Cooling U.S. inflation data raises the possibility of Fed rate cuts, a potential catalyst for a bitcoin rally.
- Bitcoin could challenge its all-time high in the coming months, according to analyst predictions.
- The crypto market may not have fully priced in the potential impact of a looser monetary policy.
- Short-term selling pressures from Mt. Gox and government disposals may be subsiding.
- Bitcoin’s price movements appear less correlated with traditional markets due to a changing investor base.
Conclusion
The slowdown in inflation presents an interesting scenario for the cryptocurrency market. While bitcoin’s role as an inflation hedge is being debated, the prospect of a more accommodative Fed could provide a significant tailwind for its price. With short-term selling pressures potentially easing, investors will be closely watching how bitcoin responds to the changing macroeconomic environment.
