The US Consumer Price Index (CPI) rose 3% year-over-year in June, slightly below the market consensus of 3.1%. Analysts argue that this CPI release is bullish for Bitcoin, but traders are questioning why the Bitcoin price is holding below $58,000. There are three factors that could explain the lack of enthusiasm among investors.
According to Daan Crypto, a trader, YouTuber, and analyst, Bitcoin (BTC) weakness could be due to scalpers and market makers trying to liquidate their leveraged long positions. However, the trend favors a “sustained uptrend,” meaning that BTC will rebound to $60,000 in the short term. Essentially, when the U.S. central bank cuts interest rates, the incentive for fixed income investments decreases, and some of these funds will seek higher yields elsewhere.
Stocks and gold rose, but Bitcoin prices stagnated.
Chris Larkin, managing director of trading and investment at E-Trade, told CNBC that the Fed is “one step closer to a September rate cut,” especially after the Bureau of Labor Statistics reported that real average hourly earnings for workers fell 3.9% year over year. The labor force participation rate also rose slightly to 62.6% in June from 62.5% in May. According to CNN, the wage cut is a strong incentive for the Fed to start cutting rates.
According to CME Group’s FedWatch interest rate futures contract tracker, traders are pricing in a 47% chance of two rate cuts in 2024, up from 24% the week before. Yahoo Finance also reported that Fed Chair Jerome Powell is paying more attention to employment data, adding that the central bank is “increasingly aware of the risks posed by a cooling labor market.”
Despite data suggesting a higher chance of a rate cut, with a 90% chance of at least one 0.25% rate cut by September, the Bitcoin price remains stuck below $60,000. Meanwhile, the S&P 500 stock market index is 0.5% below its all-time high, and gold, the market’s preferred store of value, is trading 1.2% below its May 2024 all-time high of $2,450. Even the Russell 2000 small-cap index, which excludes 1,000 U.S.-listed companies, rose 3% on July 11.
Given the constructive view on traditional finance, investors are having a hard time finding an explanation for Bitcoin’s lack of strength. This disconnect is particularly concerning given that spot Bitcoin exchange-traded funds (ETFs) have captured $800 million in inflows over the past four trading days, according to data from Farside Investors.
To make matters worse, the US dollar index, which measures the greenback against a basket of foreign currencies, fell to a five-week low of 104.4, suggesting investors are not seeking refuge in their cash positions, which could partly explain Bitcoin’s weakness.
German Government Sells BTC, Miners’ Profitability and Fears of a Recession
Bitcoin’s underperformance can be attributed to three factors. The first is FUD (Fear, Uncertainty, Doubt) resulting from the German government’s ongoing selling. Around 50,000 BTC seized from pirated movie websites in 2013 are being disposed of by authorities and sent to exchanges or known market makers. According to Arkham Intelligence, there are currently less than 5,000 BTC available for sale.
Related: Bitcoin Speculator Holds 2.8 Million BTC in ‘Worst-Performing’ Price Cycle
Another source of uncertainty comes from Bitcoin miners. The 50% block subsidy cut due to the April halving has forced some miners to sell their holdings. According to a CryptoQuant report, “large miners have sold off around $300 million since June 20, while mid-sized miners have sold off around $500 million based on cost.”
Finally, traders are concerned that the weakness in the real estate market, especially in China, will hamper global economic growth. If corporate earnings disappoint in the second half of 2024, investors are likely to seek protection in their cash positions, which is detrimental to risky assets, including Bitcoin. These combined factors explain why Bitcoin has failed to reclaim the $60,000 support level despite the favorable macroeconomic environment.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.