The head of European research at Bitwise, who has been bullish on bitcoin (BTC) for months, turned cautious after last week’s 8% drop, warning of deeper losses in the coming weeks.
Bitcoin, the most sensible cryptocurrency in terms of market value, fell 8. 8% to almost $95,000 last week, the biggest percentage drop since August, according to knowledge source TradingView and CoinDesk Indices. The losses came as the Federal Reserve signaled fewer rate cuts for next year, while emphasizing that it prohibited holding BTC and did not seek to replace the law to do so.
The so-called aggressive rate projections also weighed on sentiment in classical markets, leading to a 2% drop in the S&P 500 and a 0. 8% gain in the dollar index, taking it to its highest point since October 2022. The 10-year Treasury yield, so-called risk-free rates, higher by 14 basis points, bullishly breaking a technical trend.
Risk aversion may persist for some time, according to Andre Dragosch, director and head of European studies at Bitwise.
“The overall macroeconomic picture is that the Federal Reserve is caught between a rock and a hard place, as monetary situations have continued to tighten despite three consecutive rate cuts since September. Meanwhile, real-time inflation measures “Consumer costs have accelerated again over the past few months to new highs also judging by the US inflation truffle indicator,” Dragosch told CoinDesk.
Dragosch is one of the few observers who correctly predicted a massive BTC price rally in late July when the sentiment was hardly bullish. BTC put in lows near $50,000 around that time and recently topped $100,000 for the first time on record.
“We will most likely face more difficulties in the coming weeks, but this may provide an attractive buying opportunity given the existing tailwinds generated by the BTC source gap,” DragoschArray added.
Hardening Treasury yields, which constitute higher borrowing prices, and the relative attractiveness of fixed income investments are leading to an outflow of riskier assets such as cryptocurrencies and stocks. A stronger dollar also makes US dollar-denominated assets more expensive, discouraging capital inflows.
If you’ve been following money markets for a while, you’ve probably heard that price pressures in the U. S. economy are following the same inflation rollercoaster as those of the 1970s. than the first.
Dragosch notes that the sticky CPI inflation numbers of recent months have sparked concerns within the Federal Reserve about a possible second wave, leading to a more cautious stance on rate cuts.
The Federal Reserve fears this scenario, so Powell will do it too little or too late. . . Expect more suffering in the coming semanas. pic. twitter. com/pi9dsMIUMU
“They fear the double-hump situation and a resurgence of the double-spike inflation of the 1970s, which is why they are too reluctant to cut rates more aggressively,” Dragosch said. “They threaten a significant acceleration of inflation if they cut rates aggressively. If they don’t do much, the economy could just suffer. “
Eventually, however, the financial tightening caused by rising yields and the dollar index would force the Fed to take action, Dragosch added, stressing BTC’s supply scarcity as a major bullish factor over the long run.
Omkar Godbole is a Co-Editor of the CoinDesk Markets team founded in Mumbai, holds a Master’s degree in Finance and is a Chartered Market Technician (CMT). In the past, Omkar worked at FXStreet, writing research on foreign exchange markets and as a core analyst on the FX and commodities desk at brokerages founded in Mumbai. Omkar owns small amounts of bitcoin, ether, BitTorrent, tron and dot.
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