Bitcoin's Bullish Indicators Emerge Despite Price Reaching Five-Month Low
Bitcoin (BTC) experienced a rocky start to the second half of 2024, plummeting over 11.7% so far in the month of July, driven by fears of a market dump due to Mt. Gox’s ongoing reimbursement of over 140,000 BTC to its clients and the German government's BTC liquidations. Despite reaching a five-month low of $53,905, several key indicators suggest that Bitcoin bulls may see a potential recovery in the price of the largest cryptocurrency.
Bitcoin's chances of resuming its bull run in the coming weeks are bolstered by rising interest rate cut probabilities in September. As of July 7, Wall Street traders saw a 72% probability of the Federal Reserve cutting interest rates by 25 basis points, up from 46.60% a month ago, according to CME data. Expectations for lower interest rates have increased due to a slowdown in hiring in the United States. When the job market weakens, the Fed often considers cutting interest rates to stimulate economic activity. Lower interest rates generally bode well for Bitcoin and other riskier assets.
Another bullish indicator for the BTC market is the resumption of inflows into U.S.-based Spot Bitcoin exchange-traded funds (ETFs) after two days of consecutive outflows. On July 5, when the U.S. reported weak unemployment data, these funds collectively attracted $143.10 million worth of BTC, according to Farside Investors, signaling a rising risk sentiment among Wall Street investors. The Fidelity Wise Origin Bitcoin Fund (FBTC) led the inflows with $117 million.
Further upside cues for Bitcoin come from a recent increase in the U.S. M2 money supply, which includes cash, checking deposits, and easily convertible near-money. As of May 2024, the M2 supply grew by approximately 0.82% year-over-year, reducing its aggregate drop from a peak decline of 4.74% in October 2023 to around 3.50%. This growth in the money supply is bullish for Bitcoin because it increases liquidity in the economy, leading to higher investments in riskier assets like Bitcoin when traditional investments offer lower returns.
Finally, Bitcoin miner capitulation metrics are nearing levels seen during the market bottom following the FTX crash in late 2022, suggesting a potential bottom for BTC. Miner capitulation occurs when miners reduce operations or sell part of their mined Bitcoin and reserves to stay afloat. Over the past month, Bitcoin’s price fell from $68,791 to as low as $53,485, accompanied by a significant decline in Bitcoin’s hashrate by 7.7%, reaching a four-month low of 576 EH/s. As weaker miners exit the market or scale back, more competitive miners will see bigger profits, potentially stabilizing their operations and reducing the need to sell BTC.