The US Consumer Price Index (CPI) in June rose by 3% year-over-year, slightly below the market consensus of 3.1%. Analysts claim that this CPI release was bullish for Bitcoin (BTC), but traders are questioning why Bitcoin's price remains below $58,000. Three factors could possibly explain investors’ lack of enthusiasm.
According to trader, YouTuber, and analyst DaanCrypto, Bitcoin’s weakness can be attributed to scalpers and market makers trying to liquidate leveraged longs. However, the trend favors “continuation higher,” meaning BTC should bounce back to $60,000 in the near term. Essentially, if the US central bank cuts interest rates, incentives for fixed-income investments are reduced, and some of this money will seek higher returns elsewhere.
Stocks and gold rallied while Bitcoin price stagnated
Chris Larkin, managing director of trading and investing at E-Trade, told CNBC that the Federal Reserve (Fed) is "one step closer to a September rate cut,” especially after real average hourly earnings for workers slowed 3.9% from the prior year, according to a Bureau of Labor Statistics report. Additionally, the labor force participation rate slightly increased to 62.6% in June from 62.5% in May. According to CNN, slowing wages are a strong incentive for the Fed to begin cutting interest rates.
According to the CME Group’s FedWatch tracker of interest rate futures contracts, traders are now pricing 47% odds of two interest rate cuts in 2024, up from 24% the prior week. Furthermore, Yahoo Finance stated that Fed Chair Jerome Powell is paying closer attention to the employment rate, adding that the central bank “is increasingly aware of the risks posed by a cooling labor market.”
Despite data pointing to higher odds of rate cuts, with consensus surpassing 90% odds of at least one 0.25% rate cut by September, Bitcoin’s price remains pegged below $60,000. Meanwhile, the S&P 500 stock market index is 0.5% below its all-time high, and gold, the market’s preferred store of value, is trading 1.2% below its $2,450 record high from May 2024. Even the Russell 2000 small cap index, which excludes the 1000 largest US-listed companies, rose 3% on July 11.
Given the constructive view of traditional finance, investors struggle to find explanations for Bitcoin’s lack of bullishness. This decoupling is especially worrisome given that spot Bitcoin exchange-traded funds (ETFs) captured $800 million in inflows over the past four trading days, as per Farside Investors’ data.
To make things worse, the DXY index, which measures the US dollar against a basket of foreign currencies, declined to its lowest level in five weeks at 104.4. This suggests investors are not seeking shelter in cash positions, which could partially explain Bitcoin’s bearishness.
German government BTC sale, miner’s profitability and fear of recession
Bitcoin’s underperformance can be attributed to three factors. The first is the FUD stemming from the ongoing sale by the German government. Nearly 50,000 BTC, originally seized from a 2013 pirated movie website, are being disposed of by authorities, either being sent to exchanges or known market makers. According to Arkham Intelligence, there are now fewer than 5,000 BTC left for sale.
Another source of uncertainty comes from Bitcoin miners. The 50% cut in block subsidies from April’s halving is forcing some miners to sell their holdings. According to a CryptoQuant report, “large-size miners have sold about $300M since June 20, while mid-size miners have unloaded around $500M on a cost basis.”
Lastly, traders fear that the weakness in real estate markets, especially in China, will deter global economic growth. If corporate earnings disappoint in the second half of 2024, investors will likely seek protection in cash positions, which is detrimental for risk-on assets, including Bitcoin. These combined factors explain why Bitcoin has failed to reclaim the $60,000 support level despite a favorable macroeconomic environment.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.