Bitcoin struggles to match global market recovery trends

After periodic scares, global markets have picked up momentum, showing signs of recovery from earlier lows. However, while other markets (equities for example) have shown resilience based on expectations of a federal rate cut, the crypto market has yet to register a prolonged upward rally. Bitcoin, the largest component of the crypto market, reported a loss of momentum in August (9%), however, since the Fed chair introduced the groundwork towards a rate cut in September, it has registered an upward move of 5%. At the time of writing, Bitcoin is trading at $64,070 (August 25, 12:03 PM IST) with further predictions of an upward move. As the US Federal Reserve looks to introduce new stimulus measures, it is likely that the bulls will put aside a period of consolidation and continue their momentum.

While the fundamentalists believe that Bitcoin’s bullish momentum has stalled, the charts and oscillators present a different story. For example, the stochastic oscillator indicates that BTC’s rating has reached 82 on the 0-100 scale — in the overbought zone. This assumption is further strengthened if we look at BTC’s momentum data from April 2024, when half of the event took place. Following the April halving event, BTC has failed to replicate its previous post-halving performance and has registered a significant slowdown. This slowdown has led to significant retail participation in buying, leading to overbought zones, upward momentum on weakness and profit booking. This does not mean that the latest 5% move can be classified as a news-driven periodic upward movement, as it is not yet clear whether Bitcoin can sustain it.

Additionally, despite the participation of rising bulls and whales, Bitcoin has failed to sustain its presence above $70,000 since April. Along with this, the MACD Histogram and Ichimoku Cloud suggest that a more bullish time frame could signal the world’s largest cryptocurrency to stop selling in the immediate future.

Aligned with global market recovery trends

While crypto enthusiasts and retail traders believe that Bitcoin will soon align itself with the recovery trends of the global market, experts suggest that it is a long shot. At best, investors are open to bullish momentum over the medium term, with growing calls for deregulation worldwide and sentiment fueled by the federal rate cut in mid-September. They also believe that the instantaneous nature of Bitcoin opens a gap with traditional markets, with no tools to fill it. However, if reports of a .50% rate cut in September are to be believed, it will act as a decisive enabler of the entire cryptocurrency markets, including Bitcoin, to resume upward momentum based on its aggressiveness. This is mainly due to a reduction in brokerage and other costs associated with fixed income investments, also a sign that monetary quantitative tightening is behind us.

Compared to global markets, it can be noted that the S&P 500 is hovering around its all-time highs. In contrast, BTC has seen a 16% downtrend since June which has contributed to its risk appetite. Even if we consider the recent upward move following the Fed Chair’s speech and the subsequent rally, Bitcoin has been in a sideways market since mid-July. Similarly, investors in traditional markets like gold and equities as cushions, driven by dividends and on purchases. Declines have taken place, but cryptocurrencies have yet to offer the same remuneration to fuel investors’ aspirations.

Another aspect behind Bitcoin’s decline in recent months is its struggle to become a mainstream financial asset with a multifaceted approach across domains. Simply put, cryptocurrencies including Bitcoin cannot be used to complete traditional transactions which has adversely affected its adoption among retail investors. Bitcoin ETFs and ETNs have a total AUM (assets under assets) of approximately $66 billion, compared to gold ETFs worldwide having a total AUM of $246 billion – a fact that shows Bitcoin has a long way to go to match traditional financial instruments.

Challenge or opportunity?

Bitcoin’s inability to align with global market sentiments should not be interpreted in a black-and-white manner. Investors need to understand that various aspects make it a unique financial instrument that does not always align with macroeconomic trends. Despite the recent setbacks, Bitcoin and the rest of the cryptocurrency domain remains a productive financial asset for long-term wealth creation. For short-term traders, as the US presidential election approaches in November, all the nominees have shared a favorable view of the future of Bitcoin and other crypto assets. This will also help reassure investors who are skeptical about the US government’s fiscal debt, especially those looking to book profits to protect their financial interests. Additionally, the new influx of spot bitcoin ETFs will allow bitcoin to move forward sooner rather than later, highlighting the growing interest in BTC and related financial instruments regardless of the current challenges.

(This article is credited to Roshan Aslam, founder and CEO of GoSats.)
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)