An analyst has suggested that Bitcoin prices could rise and has backed his theory with data. According to a recent analysis, Bitcoin (BTC) is likely to see a strong rally as financial conditions in the United States become more accommodative.
The Chicago Fed's National Financial Conditions Index (NFCI) is a key indicator that tracks conditions in money, debt, and equity markets, providing weekly information on liquidity, access to credit, and market risk.
A negative NFCI value indicates looser-than-average financial conditions, creating an environment of abundant liquidity and freer capital flows.
Fejau, host of the Forward Guidance Podcast, pointed out the inverse correlation between NFCI and Bitcoin through posts on social network X (formerly Twitter).
He argues that loose financial conditions are often a catalyst for risk assets like Bitcoin, which thrive in this environment.
Fejau’s analysis tracks this correlation across multiple Bitcoin market cycles. For example, in 2013, when financial conditions became favorable, BTC prices rose from $100 in July to over $1,000 in November, coinciding with the NFCI dropping to -0.80.
Similarly, in late 2017, Bitcoin rose from $2,000 to $20,000 as financial conditions eased.
Over the past year, the NFCI has again shown loose financial conditions, contributing to Bitcoin's price rise from $25,000 to over $73,000 by March 2024, even before central banks began cutting interest rates.
Still, Fejau noted that other factors, such as the strength of the US dollar, also affect Bitcoin's performance. A rise in the DXY index typically has a negative impact on BTC because it makes speculative investments less attractive.
The NFCI recorded -0.56 for the week ending September 13, indicating that financial conditions continued to ease compared to the previous week.
