Bitcoin (BTC) last closed above $68,000 on April 11, despite trading above $67,000 several times over the past five days. Despite Bitcoin rising 2% on May 20, it needs another 7% gain to reach its all-time high. Meanwhile, the price of gold hit an all-time high of $2,450 on May 20, and the S&P 500 index rose to an all-time high of 5,325 points. This backdrop has BTC investors pondering what may be hindering progress.
Bitcoin is up 51% year-to-date in anticipation of a monetary expansion in the United States.
It could be argued that Bitcoin’s 51% year-to-date gain reflects investor expectations of the recent monetary expansion that has benefited other assets. With the U.S. Federal Reserve needing to inject liquidity to support the troubled banking sector or stimulate the economy, investors typically turn to scarce assets for protection. This trend becomes more severe as the possibility of an economic recession increases.
The U.S. monetary base (M2), which had been stagnant at $20.8 trillion since May 2023, surpassed $21.1 trillion in April 2024, according to data from the University of Florida. This change marks the end of a period of contraction in the M2 indicator that began in April 2022. 22 trillion dollars. Regardless of interest rate trends, an increase in funds in circulation means higher inflationary pressures, even if businesses and individuals are currently hesitant to spend.
However, it would be simplistic to assume that the U.S. government will continue to add liquidity if inflation remains a major public concern. For example, the Federal Reserve may choose to lower interest rates while taking steps to curb the economy, such as raising banks’ reserve requirement ratios. This strategy could slow the expansion of the M2 monetary base to achieve a ‘soft landing’ aimed at avoiding a recession in the era of high interest rates.
The global real estate sector has a weak impact on investor expectations.
Several factors are influencing the price of Bitcoin, including factors external to the cryptocurrency market and factors related to Bitcoin trading dynamics and momentum. For example, on May 17, Chinese authorities announced a plan to address the region’s struggling real estate market. The decision highlighted the risk of a recession given the sector’s fragile situation.
The People’s Bank of China (PBOC) will provide $42.2 billion to state-owned enterprises to purchase unsold apartments. Larry Hu, Macquarie’s chief China economist, told CNBC that local governments’ resources “may be too limited to move the needle at the macro level.” “We will likely see more efforts from the central government later,” Hu added. Investors are therefore skeptical that a one-time central bank intervention will solve the problem.
As Starwood Capital Group CEO Barry Sternlicht pointed out on May 15, the risk of an economic crisis triggered by the real estate sector extends beyond China. “Commercial real estate is facing a balance sheet crisis,” Sternlicht added, according to Yahoo Finance. , “Borrowers will have trouble repaying their debt because interest rates have risen.” He also reportedly predicted that North American regional and community banks would begin to fail.
Limited adoption of Bitcoin and pressure from Grayscale holding company
From one perspective, the increased risk of an economic downturn can be seen as beneficial for Bitcoin. Because this cryptocurrency is specifically designed to function as an independent financial system. However, it is important to acknowledge that Bitcoin is still not mainstream, especially as a closed-loop economic system or medium of exchange. This is why investors rarely consider Bitcoin as a primary option when looking for a hedge and instead consider it a risky asset.
On May 20, Grayscale asset management CEO Michael Sonnenshein announced his resignation after 10 years at the company. Grayscale manages the Grayscale Bitcoin Trust (GBTC) spot exchange-traded fund. Parent company Digital Current Group was significantly affected by the bankruptcy of its cryptocurrency lending and trading business, Genesis, in January 2023. As a result, investors are concerned that some of the $19.4 billion GBTC fund could be liquidated. It has a negative impact on the Bitcoin price.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.