The price of Bitcoin (BTC) has increased by almost 30% since the end of June, from $8,905 to just under $11,500 at the close of the edition. After the strong rebound of the dominant cryptomone, three macroeconomic factors point to an optimistic trend in the medium term. These macro factors point to a positive price cycle in the medium and long term, but suggest that, in the short term, the momentum will fade and a phase of consolidation will take place.
As Cathy Wood, Ark Invest’s CEO, discussed in the In the Know podcast, there is technically little resistance between $13,000 and BTC’s historic high of $20,000. Wood noted that BTC could see a new trading range between $10,000 and $13,000, which would establish a healthy consolidation phase:
„That [level] of $13,000 is important because if we were to break through it, then, in technical terms, there would be very little resistance and we would probably go back to the peaks we saw at the end of 2017, which is about $20,000. Now, we’re not sure that’s going to happen. We could stay in a new range of operations, just at a level a little higher than the recent six to ten. We may be in the range of $10,000 to $13,000. However, a breakthrough.
Whether Bitcoin stays in the $10,000 to $13,000 range for an extended period remains uncertain. Over the past three years, BTC has tended to consolidate during September and October and rebound in mid-November. Taking into account the activation of the reduction of the block’s reward that occurred on May 11, the probability of an upward trend in November-December remains high.
While Bitcoin and other crypto currencies fell by up to 15%, a listed altcoin in Huobi rose by 60%.
The disappearance of the dollar benefits Bitcoin
One persistent story about Bitcoin’s long-term prosperity is the fall of the US dollar. In recent months, mainly due to the pandemic and the US economy’s struggle to reopen, the value of the dollar has fallen against other reserve currencies.
On July 31, Lee Hardman, currency analyst at Mitsubishi UFJ Financial Group, said the dollar’s liquidation was „unrelenting. According to Supriya Menon, Pictet Asset Management’s multi-asset strategist, several macroeconomic factors, including the surge in COVID-19 cases and uncertainty surrounding the November presidential election, were contributing to the dollar’s weakness.
Meltem Demirors, Chief Strategy Officer at CoinShares, believes that periods of economic uncertainty and dollar weakness are likely to benefit Bitcoin, as they do gold:
„So where does Bitcoin stand in the economic cycle? During periods of economic uncertainty and a weak dollar, Bitcoin Profit is likely to benefit in the same way as gold. If bitcoin’s financialization continues, it can’t remain isolated from the financial system.
It’s not clear if the dollar’s downward momentum has already had its full effect on Bitcoin’s price. The US dollar has already fallen to a two-year low and, in the short term, analysts expect a dollar recovery.
However, two variables that could make the dollar fall even further are low interest rates and the European Union’s considerable stimulus package. The euro has outpaced the dollar in recent weeks, as investors found the European Union’s 750 billion euro recovery fund compelling. Despite Europe’s aggressive fiscal policies, the path of the US economy towards recovery has not been firmly established. Patrik Schowitz, global strategist for JPMorgan Asset Management, said:
„The superior economic performance of the United States relative to the euro zone and Japan (no longer) seems guaranteed, at least for the next few years, given the faltering response against the virus. […] The decline in its interest rate advantage makes the dollar less attractive and pushes investors to consider deposits in other currencies. These cyclical factors will not change in a hurry and the U.S. dollar is likely to have room to continue falling.
The dollar’s downward trend coincides with expectations of higher inflation rates in the medium term. If Bitcoin is perceived by many as a store of value and a potential hedge against inflation, it’s not a good idea to be too quick.