New momentum after rising 120%? Three pictures analyzing the logic behind the Bitcoin bull market
Original author: Omkar Godbole,CoinDesk
Original compilation: Felix, PANews
Bitcoin prices have risen 120% since the beginning of the year, and most analysts generally predict further gains in the near term. They note that the U.S. Securities and Exchange Commission (SEC) is expected to approve one or more Bitcoin spot ETFs soon, with the Bitcoin halving in April next year looming.
Changes in the market economic environment have also supported the bullish view of Bitcoin. The following three charts illustrate a positive shift in the macroeconomic factors that contributed to last years price collapse.
Is the global tightening cycle reaching a turning point? Or bring more funds to the crypto market
The global tightening cycle that rocked financial assets including cryptocurrencies last year has reached its peak (BIS, TS Lombard)
This chart from macroeconomic forecasting consultancy TS Lombard shows central bank tightening versus loose monetary policy since 1947. Positive values indicate a preference for tightening monetary policy, while negative values indicate a preference for loose monetary policy.
Among them, easing policy includes increasing market liquidity and releasing more funds into the financial system through interest rate cuts and other measures, as it did 18 months after the outbreak of the new coronavirus in March 2020; tightening monetary policy includes increasing interest rates and other tools to absorb market liquidity and thereby curb inflation.
Recently, this trend has declined, suggesting that last year’s global tightening cycle in financial markets, including cryptocurrencies, has peaked and that the market is now increasingly leaning towards looser liquidity.
As global inflation slows, central banks have more room to begin to slow down the tightening of monetary policy, which may lead to more funds flowing into the crypto market. As we all know, Bitcoin is extremely sensitive to changes in global liquidity conditions, and Bitcoin prices tend to rise when market liquidity increases.
U.S. financial conditions have eased
According to Wall Street giant Goldman Sachs U.S. Financial Conditions Index (FCI) since January, shown below, the index has fallen to just under 100 from a yearly high of 100.74 a few weeks ago, erasing all the gains seen in September and October. The impact of austerity policies.
Variables included in the FCI include short-term interest rates, long-term interest rates, trade-weighted exchange rates, a credit spread index, and the ratio of stock price to 10-year average earnings per share. Each 1% decrease (increase) in the index drives a positive (negative) change in GDP of 1% in the following three to four quarters.
The indexs decline goes against the Feds long-term stance on raising interest rates and suggests the U.S. economy will be resilient going forward, which is a positive sign for risk assets including cryptocurrencies. Most of Bitcoin’s gains this year have occurred during U.S. trading hours.
The FCI has fallen to just below 100, reversing the entire tightening from September and October (Goldman Sachs)
According to Fed analysts, financial conditions are a combination of asset prices and interest rates that change based on the health of the economy and monetary policy, and can also affect the economy itself.
The 10-year Treasury bond yield is trending downward, and risk assets are showing positive signs
The decline in the yield on the U.S. 10-year Treasury note, the so-called risk-free rate, is also another positive sign for Bitcoin’s rise. The yield on the 10-year Treasury note has fallen 50 basis points to 4.43% since the Treasury Department announced a slowdown in bond purchases earlier this month. Typically, such declines tend to prompt investors to seek higher returns in other assets such as stocks and cryptocurrencies.
Meanwhile, yields on the 10-year Treasury note could fall further, judging by a bearish head-and-shoulders top pattern on the daily chart.
EFG Banks research team said in a note to clients this week, The 10-year Treasury yield hit lower highs (as expected) and fell below the head-and-shoulders top. The patterns yield target is around 3.93 %, but current levels (uptrend) and 4.33% (breakout point) are also potential support levels.
U.S. 10-year Treasury yield daily chart (TradingView/CoinDesk)
potential risks
However, a reversal of the tightening in financial conditions signaled by the Goldman Sachs FCI index could give a more hawkish tone to the Feds rhetoric, forcing markets to reconsider the possibility of another rate hike in the coming months. This could slow down the pace of Bitcoin’s rally.
In addition, bulls should also pay attention to the sources of price fluctuations in risky assets such as Japans withdrawal from ultra-loose monetary policy, geopolitical issues, concerns about U.S. commercial real estate, and potential increases in inflation.
