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- Bitcoin chop continues...how could it end?
Hey everyone,
Hope you’re doing well.
It’s been a slow 3 months as Bitcoin has been consolidating in the range of $56k - $74k. How could Bitcoin potentially break out of the top of this range at all time highs?
We need a new infusion of liquidity into the market to power it ahead.
A new source of liquidity could come from a few different places (e.g., Ethereum ETF, Federal Reserve liquidity, Chinese liquidity, etc). One of them would be Federal Reserve rate cuts.
Federal Reserve rate cuts could help power crypto markets forward because rate cuts decrease the strength of the currency.
Historically, when we’ve had really large crypto booms the dollar has been falling. You can see this in the chart below. The orange line is the price of Bitcoin, and the blue line is the value of the dollar. As you can see, when Bitcoin breaks above its all time high and goes on a bullish run, typically the dollar has been in decline.
Note: The measure of the dollar here is called the DXY, and it’s a measure of the dollar against other currencies. It’s also possible that instead of falling relative to other currencies, the dollar falls against the value of gold…which has been going sideways lately. The dollar falling vs gold would also indicate a weakening currency.
Ok so Federal Reserve rate cuts could help Bitcoin power ahead. So then is it possible that Federal Reserve rate cuts could be headed our way?
While nothing is ever certain in markets, the answer is likely yes. But also probably not immediately. Here are two data points that are indicating that:
First, markets have priced in over a 60% chance of their being a rate cut by September (source)
Second, the 2 year treasury yield is indicating a rate cut is likely to come in the nearish term. Historically the 2 year treasury yield has led the fed funds rate, and recently it looks like its topping out before a likely drop. You can see this in the chart below (blue line is 2 year treasury yield, orange line is Fed Funds rate)
Wrapping it up…if the Federal Reserve cuts rates in their upcoming July or September meetings the cuts could be the fuel needed for Bitcoin to go on another run. We’ll have to wait and see what happens. But remember this is only one of the ways the new liquidity could hit the markets.
Cheers,
Justin
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