Crypto on the Cusp: Bitcoin Defies Odds as Fed Rate Cut Chatter Escalates
Crypto on the Cusp: Bitcoin Defies Odds as Fed Rate Cut Chatter Escalates
Digital Asset Market: The recent surge in open interest in Bitcoin futures on the Chicago Mercantile Exchange (CME) suggests that the cryptocurrency's current uptrend may soon come to an end. This pattern has historically indicated major turning points in the market. Similar to the launch of a gold ETF in the 1970s, the expected approval of a U.S.-based Bitcoin ETF may not immediately lead to a price increase, and instead could result in a post-launch decline. This influx of speculators ahead of the anticipated demand is similar to what happened with the launch of the Bitcoin futures ETF in 2021.
Macro Economics: The International Monetary Fund (IMF) has upgraded China's economic growth forecasts for 2023 and 2024, predicting a 5.4% growth this year due to a strong post-COVID recovery. The revised forecast is higher than the earlier 5% estimate. The IMF also expects growth to slow down next year to 4.6% due to weak growth in the property sector and external demand. However, the forecast is still better than the 4.2% growth predicted in the IMF's World Economic Outlook in October.
In other news, Chinese artificial intelligence company Baidu has ordered AI chips from Huawei as a viable alternative to those from U.S. chip giant Nvidia, signaling a shift in Chinese attitudes towards Huawei's products due to pressure from the United States government's restrictions on chip exports to China. The order was placed in August, ahead of the stricter October rules.
Equities: US stocks are expected to end a six-day winning streak due to uncertainties surrounding the Federal Reserve's interest-rate policy. Minneapolis Fed President Neel Kashkari's recent hawkish comments have tempered hopes of swift interest rate cuts. Investors are awaiting more statements from Fed officials, including Chairman Jerome Powell, for further clarity. Meanwhile, bond markets and European stocks have also fallen, with UK bond yields dropping due to comments by Bank of England's chief economist suggesting potential rate cuts in the future. European oil producers have dragged down stock indexes, while UBS saw a rise in stock prices after reporting better-than-expected third-quarter results.
The Fed and US Treasury: Chicago Federal Reserve President Austan Goolsbee says that there is still a possibility for a soft landing as the central bank works to control inflation without causing significant harm to the economy. Although core inflation is still above the Fed's target, there has been a significant drop in price pressures. Goolsbee also highlights the strength of the economy, with GDP expanding at a rate of 4.9% in the third quarter. The Fed will continue to closely monitor data before making any decisions at their December meeting. Just 30 minutes earlier, the Minneapolis Fed President Neel Kashkari gave hawkish indications of slower rate cuts.
Geopolitical: Vladimir Putin has decided to run again in Russia's 2024 presidential election and this is not surprising given the ongoing war in Ukraine and the changes made to the constitution in 2020. He could potentially stay in power until 2036. Putin's potential announcement is expected soon and he has previously hinted at running for office. Many believe that Russia needs a strong leader to stand up to the West and NATO, but others are growing weary of the war in Ukraine and the resulting casualties. It has been a long time since Putin has had any significant challengers and the West views this as suppression of opposition, while many Russians see him as a symbol of national unity and strength.
View from our desk
Bitcoin has been demonstrating resilience, maintaining a steady price around the $35,000 mark despite a flurry of profit-taking in the past week. The peak in open interest on CME Futures suggests a heightened level of market engagement, while the downside risk remains relatively contained, hinging primarily on potential regulatory actions from the SEC. The anticipation of an ETF approval continues to buoy market sentiment, with the prospect of Bitcoin reaching or surpassing the $40,000 threshold should such an approval be granted. Investors remain cautiously optimistic, looking towards the SEC for signals that could catalyze the next significant price movement.
In the broader financial landscape, Treasury yields for both 10-year and 30-year bonds have retreated from their recent highs, aligning with our previous assessments that a 5.0% peak would cap the 10-year yield. The Federal Reserve's communications have been somewhat ambiguous, with hints at possible rate cuts as early as the first quarter of 2024. This speculation has been fueled by the pressing need to manage the yield curves more effectively, particularly in light of the challenges surrounding the refinancing of U.S. debt. Market participants are closely monitoring the Fed's next moves, as any efforts to reduce yields could have significant implications for both traditional and digital asset markets.
The intersection of these two spheres – the steadfastness of Bitcoin and the shifting dynamics of Treasury yields – underscores a pivotal moment for investors. With the Federal Reserve under pressure to alleviate yield curve stresses and the crypto community awaiting regulatory decisions, the stage is set for potential shifts in investment strategies. As the market navigates through these uncertainties, the anticipation of an ETF approval serves as a beacon of hope for crypto enthusiasts, while traditional investors watch the Fed's policy direction for cues on the future of interest rates and debt management..
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