Let’s analyze the market to see if the bull cycle is truly over.
First, we need to figure out if there is a bubble in the market now. Bubbles usually form when market structure indicators show it, such as the first bubble in this cycle formed when the price of Bitcoin reached $73,000. Now, this indicator has dropped to 1.02, which is basically the baseline level, meaning that there is no bubble in the market at present.
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How do bubbles form? A bubble occurs when the market value of Bitcoin grows faster than its actual market value, which usually reflects the speculative interest in the market. In simple terms, many people buy Bitcoin at high prices because of FOMO - fear of missing out.
Next, let's look at the standard deviation of MV/RV, which is smoothed by two moving averages of 30 days and 365 days to help us understand whether the bull market is over. From the current data, this bull cycle has developed very steadily, without any major anomalies or sharp rises. The 30-day moving average MVRV Z-score is now 1.8, which is the least overvalued Bitcoin compared to the annual average of 1.6. In past cycles, when the 30-day moving average MVRV Z-score rose above 5, it usually meant that the price reached a peak and then adjusted.
So, according to this indicator, we can consider that the current bull cycle is still active and the market can still be considered bullish as long as this indicator does not reach extreme levels that could signal the risk of a major correction.
Fed FOMC meeting minutes are dovish: rate cut is possible in September
The Fed recently held a meeting to discuss interest rates. They felt that although interest rates are high now, rising inflation and unemployment may require them to adjust slightly. Several officials even felt that a 25 basis point rate cut was reasonable now, or they could have supported the decision.
However, most members still feel that if the data continues to meet expectations, they may have to consider easing policy at the next meeting. Fed Chairman Powell also said that they hope everyone can have more confidence that inflation can reach the 2% target before cutting interest rates.
The minutes also mentioned that the risks to the employment target have increased, while the risks to the inflation target have decreased. Some members are concerned that if the labor market continues to relax, it may get worse. This suggests that the Fed may start to pay attention to the risks in the labor market.
Some analysts believe that the Fed may need to speed up the pace of rate cuts to ensure a smooth landing for the U.S. economy. Priya Misra of JPMorgan Chase said that if risks in the labor market are really increasing, the Fed should speed up rate cuts by 50 basis points each time until it returns to a neutral zone, and then slowly adjust.
Futures markets are pricing in an easing of around 100 basis points in interest rates for the rest of the year. This is good news for the cryptocurrency market, as risk assets tend to do well in a low-interest rate environment.
However, despite the cryptocurrency market's gains due to the Fed's dovish outlook, there is some negative news in the market that may curb the buying rush. Some members of the crypto community are optimistic about the recent rise, believing that it could be a return to the bull market, especially if the Fed does cut interest rates in September.
In the U.S. stock market, after falling in midday trading, the major indices rebounded and moved higher after the release of the FOMC minutes, with the S&P 500 and Nasdaq 500 rising 0.42% and 0.57% respectively at the close, while the Dow Jones fell sharply before the close and finally closed flat.
Let's talk about what market analyst Bloodgood thinks about the September rate cut
Although the market generally expects a rate cut in September, Bloodgood reminds us that some people may use this opportunity to spread panic, uncertainty and doubt, or FUD. He advises investors to view these macro news rationally.
Bloodgood said that with less than a month to go before the September FOMC meeting, a rate cut is basically certain, and the question now is whether it will be a 25 basis point cut or a 50 basis point cut. The futures market shows that the probability of a rate cut is about twice as high as two. But he also pointed out that although the long-awaited turning point seems to have arrived, some people may be overconfident and think that this will be a market disaster because recessions usually occur after the start of a rate cut cycle.
Bloodgood explains that in the face of these overconfident comments, we should remember a few things: First, the market's reaction depends largely on whether the rate cut is seen as a desperate attempt to repair the damaged economy or as a way to stimulate growth. Second, while recessions tend to follow rate cut cycles, the probability of this happening is about 60%, not more than 90%. Finally, even in cycles where recessions occur, the S&P 500 index will still be higher for most of the subsequent year. In general, recession news should be taken with a grain of salt.
As for Bitcoin, Bloodgood said that from the weekly chart, Bitcoin is currently in the accumulation zone, but there is no clear sign of where it will go next. He reminded that in the big picture, we still see a bearish structure, so there is nothing new here. As long as Bitcoin does not make higher highs, there is no hope of continued rise. Every upward move will be tested at the downward trend line, so investors should make sure not to enter the market too early.
Legendary trader Peter Brandt said on X platform that the BTC/GLD ratio shows the price of Bitcoin relative to gold. Currently, the ratio is 23.4, Bitcoin is still below its 2021 high, and the ratio has room to fall below 20. To declare BTC/GC in a bull trend, it needs to break through 32.5.
