- Economic factors seem to be aligning for a potential asset price boom.
- Bitcoin investors are poised to benefit from the converging economic factors.
- Skepticism is growing around the claimed strength of the U.S. economy.
Bitcoin hit a new all-time high of $74,000 in March, fueled by anticipation of the halving event and buying pressure from spot ETFs. Subsequent months have been marked by significant price volatility, driven by global events such as escalating tensions in the Middle East, the German government selling BTC, and the recent unwinding of the yen carry trade .
Despite these turbulent events and talk of an economic downturn , some observers believe that a confluence of converging economic factors could create favorable conditions for Bitcoin, potentially adding tailwinds to propel the leading cryptocurrency higher in the near term.
Bitcoin Positioned to Rise
The Bitcoin market has been characterized by significant volatility in 2024, with prices experiencing sharp fluctuations. Despite this, some observers believe combining economic factors could drive Bitcoin’s price higher in the coming months, focusing primarily on monetary policy and global liquidity conditions.
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A key indicator under scrutiny is the M2 money supply , which refers to a broad measure of money in circulation, including cash, checking deposits, and other liquid assets.
X influencer Marty Party recently highlighted that the combined M2 money supply of the U.S., E.U., Japan, and China has reached $80.75 trillion and continues to rise. M2 money supply increases via economic growth and central bank money printing.
Historical data showed a strong positive correlation between the M2 money supply and the prices of both Bitcoin and stocks. This suggests that an increase in M2 may increase asset prices, including Bitcoin.
Interest Rates Down
Another potential tailwind for Bitcoin is the growing expectation of interest rate cuts by the Federal Reserve. Fed chair Jerome Powell recently signaled the possibility of lower rates , citing increased confidence in achieving the central bank’s 2% inflation target.
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Market predictions currently place the odds of a 25 basis point rate cut at the September 18 Fed meeting at 67.5% . If this cut is implemented, it will make borrowing cheaper for consumers, potentially freeing up more capital for investing in assets.
The U.S. inflation rate has decreased since March, now at 2.89%. This decrease in inflation and the potential for rate cuts will likely boost investor sentiment and create a favorable environment for risk assets like Bitcoin and stocks.
Recession Coming?
While optimism about potential rate cuts and increased liquidity persists, recent employment data has introduced some uncertainty into the economic outlook.
The Bureau of Labor Statistics recently revised its March employment figures downward by 818,000 jobs , prompting a reassessment of the previously strong jobs market narrative.
Further complicating the economic picture, the July jobs report revealed that the U.S. economy added only 114,000 jobs, falling 35% short of forecasts. This underwhelming job growth pushed the unemployment rate to 4.3%, its highest level since October 2021.
A weakening job market raises concerns about a potential recession. Recessions typically lead to reduced consumer spending and investment, which can negatively impact asset prices and pose challenges to market sentiment and investor confidence.
On the Flipside
- Revising job numbers downward fuels skepticism about the true strength of the U.S. economy.
- Arthur Hayes, BitMEX co-founder, stated that the Fed and Treasury have no choice but to stimulate the economy , which he believes will ultimately drive Bitcoin to $1 million.
- The Bitcoin price is influenced by more than the M2 money supply and interest rates.
Why This Matters
The interplay between Bitcoin and macroeconomic forces underscores the asset’s growing importance beyond the crypto sphere.
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