On Wednesday, following the release of the latest meeting minutes of the Federal Reserve Open Market Committee (FOMC), Bitcoin (BTC) prices rebounded strongly, successfully crossing the important psychological level of $61,000, and once again became the center of heated discussion among investors and market analysts. This jump in price is not only impressive, it has also reignited widespread interest in the cryptocurrency, especially with current global liquidity conditions having a significant impact on the value of Bitcoin.
In addition, the close relationship between Bitcoin and the US dollar index (DXY) has also become a focus of discussion. As an indicator of the strength of the US dollar relative to a basket of currencies, the fluctuations of DXY have a profound impact on crypto assets such as Bitcoin. Historical experience shows that when the US dollar shows signs of weakness, investors tend to transfer funds to alternative assets such as Bitcoin as a hedging tool, and this trend is becoming more and more obvious in the current market dynamics.
This article will analyze the following three key questions: What are the driving factors behind this round of Bitcoin price increases? What is the impact of the decline in the US dollar index on Bitcoin and other cryptocurrencies? Why will the increase in global liquidity affect investors' preference for risky assets? Provide you with a comprehensive perspective to better understand the current financial market.
DXY hits 2024 low driven by macro factors
First, let's look at the trend of the US dollar index (DXY). DXY has continued to fall since June, forming a series of gradually decreasing trends and hitting a new low in 2024. In particular, after falling below the low of $101.340 on January 1, DXY did not stop, but fell further until it hit the annual low of $100.923 on Wednesday.
As of now, the DXY is trading at a stable price of $101.343. This decline in the dollar index is a positive sign for investments such as Bitcoin and other cryptocurrencies, which are considered risky assets. Usually, the weak performance of the US dollar prompts investors to look for other asset classes for better returns, and cryptocurrencies such as Bitcoin tend to benefit from this.
At the same time, the growth trend of global liquidity cannot be ignored. Global liquidity, usually measured by M2 money supply, covers various liquid assets including checking accounts, savings accounts, and assets that can be quickly converted into cash. The growth of M2 reflects the total amount of money in the economy and is a key indicator for assessing economic liquidity and monetary policy easing.
Risk assets, including Bitcoin, tend to be positively correlated with increases in liquidity. Bitcoin price fluctuations are closely tied to the expansion of M2, a phenomenon that reflects not only market sentiment but also macroeconomic conditions. When the M2 expansion rate is high, it usually means that monetary policy is looser and the money supply is increasing, which tends to have a positive impact on risk assets such as cryptocurrencies.
As Cryptonary points out, “BTC is the most liquidity-sensitive asset. Historically, for every 10% increase in global liquidity, Bitcoin prices have risen by an average of 40%.” This observation reveals a significant correlation between Bitcoin price and global liquidity, providing an important perspective on how Bitcoin performs in the current macroeconomic environment.
Market expectations of the Fed's downward policy trend
The minutes of the Federal Open Market Committee (FOMC) meeting released by Cai San showed that the market generally predicts that the Federal Reserve may adopt a looser monetary policy at the next meeting. Although this decision will be based on whether economic data continues to improve, there are already signs that some policymakers are leaning towards a 25 basis point rate cut at the July meeting. Although the Federal Reserve has chosen to keep interest rates unchanged for now, market expectations for a rate cut have increased significantly.
According to the CME Fed Watch tool, market expectations for a 50 basis point rate cut in September have risen to 26.5%, a change that reflects strong market expectations for monetary policy easing. However, Fed Chairman Jerome Powell has consistently stressed a cautious approach, warning of the risks of a premature rate cut. Nevertheless, the FOMC minutes provide an important window into changes in policymakers' views on interest rates.
Currently, the market is closely watching the Fed's next move, especially Powell's speech at the Jackson Hole Symposium. Some media reported that Powell’s remarks may have a significant impact on the market, especially in the field of risky assets such as Bitcoin.
The expectation of a rate cut is usually a positive signal for risk asset markets, which is also consistent with the price trend of the Bitcoin market. Although Bitcoin's breakthrough of the bull market support line of $6,1000 still needs further confirmation, the market will undoubtedly look for clues about the future direction from Powell's speech.
Conclusion:
In the financial world, every policy adjustment and every change in economic indicators may trigger a chain reaction in the market. In 2024, with the decline of the US dollar index and the rise of Bitcoin, we are standing on the threshold of a new financial era. As investors, we need to deeply understand the economic principles and market logic behind these changes in order to make wise investment decisions.
At the same time, this article provides you with a comprehensive perspective to understand the pulse of the current financial market by analyzing the FOMC meeting minutes, the trend of the US dollar index, the global liquidity situation and the expectations of Powell's speech. We hope that these analyses can help you seize opportunities, avoid risks and achieve steady growth of wealth in a complex and changing market.
