Bitcoin Stalls Below $60K Amid Economic Indicators and Market Skepticism

Despite investor bets on Federal Reserve interest rate cuts, Bitcoin's price remains mired in a downtrend. 

Source: www.getmidas.com

The US Consumer Price Index (CPI) increased by 3% year over year in June, slightly below the expected 3.1%, which analysts saw as bullish for Bitcoin. Yet, the cryptocurrency struggles below the $58,000 mark, prompting questions among traders. One explanation points to scalpers and market makers liquidating leveraged long positions, exerting downward pressure. However, some analysts foresee a potential bounce back to $60,000 soon, suggesting a favorable trend continuation. If the US central bank cuts interest rates, it diminishes incentives for fixed-income investments, prompting capital to seek higher returns elsewhere.

Stocks and Gold Saw Significant Rallies But Bitcoin’s Price Remained Stagnant

Chris Larkin, managing director of trading and investing at E-Trade, indicated to CNBC that the Federal Reserve is increasingly likely to implement a rate cut in September, spurred by a Bureau of Labor Statistics report showing a 3.9% slowdown in real average hourly earnings from the previous year. The labor force participation rate also edged up to 62.6% in June, from 62.5% in May, further supporting the case for rate cuts, according to CNN. Traders, as reflected in CME Group’s FedWatch tracker, have increased the odds of two interest rate cuts in 2024 to 47%, up from 24% the previous week. Meanwhile, Yahoo Finance noted that Fed Chair Jerome Powell is closely monitoring the employment rate, with the central bank increasingly concerned about risks from a cooling labor market.

Despite these indicators pointing towards higher chances of rate cuts with a consensus suggesting over 90% likelihood of at least one 0.25% rate reduction by September  Bitcoin's price remains stagnant below $60,000. In contrast, the S&P 500 index is just 0.5% below its all-time high, and gold, seen as a haven asset, is trading 1.2% below its peak of $2,450 in May 2024. The Russell 2000 small-cap index, which excludes the largest US-listed companies, also rose by 3% on July 11.

The divergence between traditional financial markets' optimism and Bitcoin's lack of bullish momentum perplexes investors. This gap is particularly concerning given that spot Bitcoin ETFs saw $800 million in inflows over the past four trading days, according to Farside Investors' data. Compounding the situation, the US Dollar Index, which measures the dollar against other currencies, fell to its lowest level in five weeks at 104.4. This suggests that investors are not flocking to cash positions for safety, which could partly explain Bitcoin's bearish performance.

3 Possible Key Factors for Bitcoin Recent Underperformance

Bitcoin’s recent underperformance can be traced to three key factors. The first is the ongoing FUD related to the German government’s sale of nearly 50,000 BTC, originally seized from a pirated movie website in 2013. Authorities are disposing of these assets by sending them to exchanges or known market makers. As of now, Arkham Intelligence reports that fewer than 5,000 BTC remain for sale.

Another significant factor impacting Bitcoin is the financial pressure on miners. The 50% reduction in block subsidies following April’s halving has forced some miners to liquidate their holdings. According to a CryptoQuant report, large-scale miners have sold approximately $300 million worth of Bitcoin since June 20, while mid-sized miners have offloaded around $500 million based on cost.

Lastly, concerns over global economic growth, particularly due to weakness in the real estate markets in China. Traders fear that disappointing corporate earnings in the second half of 2024 could lead investors to move into cash positions, adversely affecting risk-on assets like Bitcoin. These combined factors elucidate why Bitcoin has struggled to reclaim the $60,000 support level, despite an otherwise favorable macroeconomic environment.

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