Bitcoin Surges in 2024: Digital Gold Outshines Traditional Finance Amidst Growing Uncertainty
Bitcoin Surges in 2024: Digital Gold Outshines Traditional Finance Amidst Growing Uncertainty
Digital Asset Market: The bitcoin price started 2024 with a strong surge, rising over 7% in 24 hours to reach $46,000, its highest level since April 2022. This increase has been attributed to anticipation of a U.S.-based spot bitcoin ETF receiving regulatory approval this week. If approved, this could fuel buying pressure for bitcoin as the first regulated spot bitcoin product in the U.S. Market analysts remain divided on the potential impact of ETF approval, with some predicting a significant rally in bitcoin's price above $50K, while others remain cautious. As a result, broader crypto markets saw gains as well, with Ether, Solana, and Avalanche all rising in value.
Macro Economics: As the new year begins, concerns over U.S.-China tensions and potential restrictions on chip sales are weighing on the stock market, particularly in the technology sector. The Nasdaq 100 has re-balanced its weightings, reducing the impact of high-performing stocks known as the "Magnificent 7". The energy sector is seeing both positive and negative developments, with a recognition of the need for a strong domestic industry but also heightened tensions in the Middle East. Bond yields are fluctuating, with some believing that the market has gotten ahead of itself in terms of rate cuts and inflation risks. Overall, the market outlook is generally neutral.
Equities: US stocks started the new year with a decline as Apple's stock slipped due to concerns about demand for new iPhones. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all fell. This comes after a strong 2023 for stocks, but the rally may be put to the test this week with economic updates and the December jobs report. The manufacturing sector saw a bigger decline than expected in December, with employment also dropping for the third straight month and inflation increasing. Apple's stock dropped 3% after a downgrade from Barclays analysts who predict cooling demand for the iPhone 15. The tech giant's stock had a strong 2023 but trailed behind other tech giants.
The Fed and US Treasury: The new year kicks off with the minutes from the Federal Reserve's December meeting coming on Wednesday, and the December employment report on Friday. While the Fed kept interest rates steady, 3 rate cuts are expected this year. Inflation in the U.S. has decreased due to lower shelter and goods prices, but risks still remain. The labor market is expected to continue cooling, with around 170,000 jobs added in December, according to forecasts. ADP's private job survey for December is expected to show an increase in jobs added from the previous month. Overall, experts anticipate a slower pace of job growth and wage growth in the coming months..
Geopolitical: The former Pentagon official, Michael Maloof, predicts that there will be a tumultuous start to 2024 as the ongoing standoff over funding for Ukraine highlights the lack of support and appetite for continuing to fund the country. He believes negotiations are the only path forward and points to the grim realities on the battlefield. He also notes that even mainstream media coverage has turned negative towards Ukraine. Maloof believes the war is over and there is no way for Ukraine to turn things around. He also discusses the potential government shutdown in January if the US administration and Congress cannot come to a resolution on funding. American public support for funding Ukraine has been decreasing as well.
View from our desk
The new year has kicked off with Bitcoin reaching a new one-year high, sparking widespread anticipation of an ETF approval later this week. Market expectations are high for an approval announcement after market hours on Friday. However, the specific timing of this announcement is less critical than its impact. While we foresee a surge in Bitcoin prices following the news, we advise investors to exercise caution. Buying at these post-announcement highs could be risky, especially considering the potential for a pullback. Many investors who entered the market earlier in the year might look to take profits after the new highs are set. Therefore, our recommendation is to approach the situation with caution and avoid getting caught up in the momentum.
2024 is shaping up to be a year filled with significant geopolitical and economic uncertainties. On one hand, there's a belief that the elusive soft landing has been achieved, but signs of over-optimism are also evident. As a result, we maintain a neutral stance on the economic outlook at this juncture. The Federal Reserve is expected to cut rates, influenced by it being an election year and the substantial refinancing needs of U.S. Treasuries. However, the trajectory of inflation remains uncertain. Geopolitically, tensions in the Middle East and the ongoing U.S.-China trade issues present further complexities. The situation in Ukraine appears to be nearing a resolution, which could lead to lower energy prices and help ease inflationary pressures. Nonetheless, there are still many unknowns for 2024, making it a year to watch closely.
Investors should be prepared for a year of volatility and unpredictability. The potential ETF approval could bring short-term gains for Bitcoin, but the broader economic and geopolitical landscape will likely have a more sustained impact on the markets. With the Federal Reserve's policy decisions, geopolitical tensions, and inflationary trends all in play, the financial markets could see significant fluctuations. Investors are advised to stay informed, diversify their portfolios, and be ready to adapt to the rapidly changing market conditions.
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The 1Konto Team
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