Over the last two months, Bitcoin has traded sideways, after the recent rally that pushed its price beyond the all-time high. This prompts the question: what is needed to move out of this zone?
Historically, the most rapid expansions in Bitcoin have corresponded with significant increases in the global money supply (M2), signaling periods of high liquidity and strong investor risk appetite. These periods often see substantial new capital entering the market, typically culminating in cyclical peaks driven by retail investors' FOMO.
Yet, this dynamic has not appeared in the current cycle. Despite a slight rise in global liquidity over the past year benefiting Bitcoin, the year-over-year change in M2 has returned to neutral levels early this year. This shift followed persistent inflation data in the U.S., which led to a downward revision in the market's interest rate cut expectations from five to two for 2024.
Currently, there's a lack of immediate signs indicating a surge in demand that could significantly push prices higher. On the supply side, selling pressure has decreased as LTHs have seen price stabilization around $60k, and STHs have reduced sales due to decreased profitability.
Given this context, it seems likely the market will maintain its sideways trend until triggers emerge that can drive a decisive movement. Current market structure, including factors like profitability, leverage, and the age distribution of coins, suggests there's potential for a more expressive rally within this cycle.
The most probable scenario for me is that Bitcoin will stay within this trading range until a more favorable macroeconomic setting emerges, likely centered around the expected first U.S. interest rate cut in September. Such an environment could spark a new demand wave and a subsequent rally, marking the cycle's peak.
P.S.: The upcoming U.S. inflation data, expected this week, is pivotal and may shape market expectations about short-term monetary policy.
Written by Gustavo Faria
