Bitcoin Flirts with $58K: Could September’s Fed Meeting Trigger a New Wave of Volatility?
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Digital Asset Market: Bitcoin briefly crossed $59,000 earlier on Tuesday morning before pulling back to below $58,000 as the US stock market opened down more than 1%, which added to the earlier concerns of a potential interest-rate increase in Japan, causing it to drop below $58,000. The US is expected to release a string of economic data this week, with a potential rate cut from the Fed likely to boost riskier assets like crypto. Meanwhile, the Bank of Japan governor reaffirmed plans to raise interest rates further, causing the Japanese yen to gain strength and leading to a decline in US stock futures and bitcoin prices. In a move similar to MicroStrategy, Japanese investment adviser Metaplanet adopted Bitcoin as a reserve asset earlier this year and is now using SBI VC Trade to provide custody services. This follows Metaplanet's strategy to hedge against the volatility of the yen by holding 360.4 BTC worth $21 million.
Macro Economics: Copper is often considered the "canary in the economic coal mine" by some economists - an indicator of the overall health and performance of the global economy. However, recent data has raised concerns about a potential slowdown. Goldman Sachs has slashed its long-term bullish position on the base metal and significantly reduced its copper price forecast. This seismic shift comes amid several factors, including weak economic data from China and elevated levels of refined copper production exported from the world's second-largest economy. This has delayed the projected copper rally, with analysts expecting it to come much later than previously thought. As a result, Goldman has lowered its 2025 price forecast by nearly $5,000, but it still anticipates higher prices than current levels. The disappointing economic data from China this summer, showing sliding demand for copper, has been a critical factor in this decision. Despite strong demand for "green" metals, China's overall economic growth has been below expectations, leading to an unexpected buildup in copper inventories. This further challenges the possibility of a market deficit and subsequent price rally in the near future. Goldman's change in view on copper, from ultra-bullish to more cautious, also reflects the ongoing property downturn in China and concerns
Equities: The stock market opened down on Tuesday, with the Dow dropping 480 points and the S&P 500 and Nasdaq sliding 1.3% and 1.8%, respectively. Investors are focused on a week of labor data, including Friday's highly anticipated jobs report. Technology stocks, including Nvidia, led to the decline, which dropped around 6%. This came as new data showed signs of weakness in manufacturing production, raising concerns about the health of the U.S. economy. The market had a strong August, but investors are now cautious as they head into September, typically the worst month for stocks. The next major economic report is the August jobs report, released Friday.
In other news, Warren Buffett's Berkshire Hathaway resumed selling its significant stake in Bank of America last week, selling $6 billion worth of shares in multiple transactions. This has been an ongoing process since mid-July, and Berkshire has sold shares in 21 out of the past 33 sessions. BofA is the third largest equity holding in Berkshire's portfolio, but the company remains the largest shareholder with a stake of 11.4%.
The Fed and US Treasury: Investors expect the Federal Reserve to cut interest rates by a full percentage point this year, with a more significant cut at one of its remaining meetings. Friday's inflation data showing a decline toward the Fed's 2% target has added pressure on the upcoming labor report to determine the size of the rate cut at the September meeting. Economists expect the Fed to proceed with cautious 25 basis point cuts at the next three meetings but may opt for more significant cuts if economic conditions worsen. At the September meeting, markets currently give a 31% chance for a 50 basis point cut. They are particularly paying attention to the upcoming August jobs report to gauge the extent of a potential economic slowdown. Morgan Stanley forecasts that unemployment will decrease and the US economy will add 185,000 jobs in August, leading the Fed to cut rates by 25 basis points in September. Consensus expectations among economists suggest an increase of 163,000 jobs in August and a decrease in the unemployment rate to 4.2%.
Geopolitical: Brent crude oil prices have fallen sharply below $75 per barrel, erasing all gains made in 2021. This is due to reports that a resolution to the ongoing dispute in Libya over control of the central bank could lead to the restart of oil production in the country. However, the reality is that the conflict is still ongoing, with Libya's state oil firm declaring force majeure on a key field. This has led to a production halt and a significant drop in output. Despite hopes for a resolution and a potential increase in global supply, concerns about global demand and a recent Reuters report that OPEC+ may boost output have led to decreased oil prices.
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Signals of the Bank of Japan potentially raising rates further, coupled with increasing economic concerns in the U.S., are pushing the crypto market down today. All eyes are on the labor and employment data due on Friday, September 6th. With these concerns largely priced in, Bitcoin is currently hovering around $57,600, and we expect it to oscillate near the $58,000 mark for the rest of the week.
September has historically been a challenging month for investors, and this year appears to be following suit. We are approaching a pivotal Federal Reserve meeting later this month. Despite the stock market being near all-time highs and inflation appearing to be under control, broader economic concerns persist, making this week's labor and employment data even more crucial. Additionally, the market is already pricing in a 100 basis point rate cut for 2024, suggesting that one of the three remaining Fed meetings this year could announce a 50 basis point cut.
If the Fed sounds less dovish than expected at its meeting concluding on September 18th, we could see significant market volatility. The Federal Reserve is likely aware of this and, given the proximity to the upcoming elections, will probably align its actions with market expectations to avoid unnecessary disruptions.
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The 1Konto Team
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