Macro conditions greatly improved for Bitcoin last week.
Both the Federal Reserve and the US Treasury have made liquidity conditions significantly easier for risk assets in the second quarter of the year.
That’s according to David Brickell, head of international distribution at institutional capital markets firm FRNT Financial, and Chris Mill, former forex trader at the Bank of England.
“Bitcoin can begin its next leg higher, starting the ascent to $100,000,” they wrote in their joint crypto newsletter, “Connecting the Dots.”
Three reasons
The market has been too pessimistic lately, the analysts said, and it’s now likely to swing back to the upside.
“The market is positioned far too hawkishly and is underweight risk,” they wrote. “That hawkish positioning will need to be unwound over the coming weeks and will provide a powerful tailwind to our markets.”
The analyst pointed out three reasons why liquidity conditions were likely to improve in the near future.
The first reason was that the Federal Reserve struck a relatively dovish tone at last week’s federal open market committee meeting, squashing concerns that the US central bank may raise interest rates again anytime soon.
If it had raised interest rates, the Federal Reserve would have made it more expensive for people and businesses to borrow money.
Risk-on investments like Bitcoin tend to perform poorly in such conditions, while the US dollar tends to get stronger.
The agency also announced that it would be tapering its quantitative tightening programme earlier than expected — meaning it will reinvest an extra $35 billion into the bond market starting June.
“[Fed chair] Jerome Powell is pushing the market to the right, risk on tail!” the report said.
The second reason was that the US Treasury announced a debt buyback programme — the first of its kind since the early 2000s — which will aim to support liquidity in the Treasury market in June and July.
“Between the Fed and US Treasury… liquidity conditions in Q2 will be significantly easier keeping a lid on yields and the dollar, reversing what was becoming a stronger headwind to both Bitcoin and broader risk,” the analysts wrote.
Finally, poor job numbers came in on Friday — which the report says will compel the Federal Reserve to lower rates soon.
“Especially ahead of the election, the Fed will be quick to respond to signs of labour market weakness,” it said.
“We were waiting for a spark to take us out of the range bound lethargy and generally heavy price action for Bitcoin. Between the Fed and US Treasury, that spark has been ignited,” the analysts added.
Crypto market movers
Bitcoin dropped 2.6% to $61,880 over the past 24 hours.
Ethereum is down 2.3% to $3,000.
What we’re reading
Binance CEO Richard Teng provides key details on how execs were arrested and jailed in Nigeria — DL News.
Robinhood To Prevail Against SEC Despite Wells Notice: KBW — Milk Road.
Horizontal Scalability Is the Solution to L2 Fragmentation — Unchained.
Donald Trump’s Potential Return Could Boost Bitcoin: Standard Chartered — Milk Road.
Minister urges regulators not to ‘undermine’ London’s crypto scene with too many rules — DL News.
Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin? Reach out at tcarreras@dlnews.com.
