The Bitcoin (BTC) price rose 5% between August 13 and August 14, reaching $61,791, before quickly reversing the entire move, crashing to $58,914 in less than two hours. The sharp drop came after the US reported inflation figures that were slightly below analysts’ expectations. The initial price surge was driven by a significant announcement about a spot Bitcoin ETF (exchange-traded fund) and MicroStrategy (MSTR) holdings, but macroeconomic conditions ultimately proved decisive on August 14.
The impact of major companies adding Bitcoin ETFs and MicroStrategy positions was limited.
Goldman Sachs, a leading global financial institution, disclosed in its 13-F filing that it had a new spot Bitcoin ETF holding totaling $418 million as of June 30, reflecting its positions. The allocation was made across multiple providers, including BlackRock, Fidelity, Invesco, and Grayscale. It is unclear whether these investments were made by external fund managers or Goldman’s internal asset management team, but this is a significant milestone for the firm, which manages $2.81 trillion in assets.
Not all asset managers have embraced such investments. According to CNBC, JPMorgan, Bank of America, and Wells Fargo continue to restrict their financial advisors from recommending spot Bitcoin ETFs. Meanwhile, Morgan Stanley, one of the world’s largest asset managers, only authorized its 15,000 financial advisors to distribute and sell spot Bitcoin ETFs on August 7. As a result, Goldman’s allocation could set a precedent that encourages its competitors to follow suit.
Also, the 13-F filing released on August 14th further fueled interest in Bitcoin through significant positions in MicroStrategy (MSTR) stock. Norges Bank, the central bank of Norway, reported owning 1,123,930 shares, worth $152.2 million, while Swiss National Bank disclosed owning 466,000 shares, worth $63.1 million. Furthermore, South Korea’s National Pension Service announced that it had acquired 245,000 shares, worth $33.2 million.
A key driver of Bitcoin’s subsequent decline appears to have been a report from the U.S. Department of Labor, which said the Consumer Price Index (CPI) rose 2.9% over the past 12 months, the slowest pace since March 2021. Notably, housing costs accounted for 90% of the total, reinforcing investor confidence that the Federal Reserve (Fed) will likely cut rates throughout 2024.
Investors Move Away from Bitcoin on Global Recession Fears
An expansionary monetary policy environment generally helps the stock market by reducing the cost of corporate financing and making fixed income investments less attractive. Bitcoin does not compete directly with the S&P 500, but much of its appeal comes from its hedge role, especially during periods of uncontrolled inflation. As a result, recent macroeconomic trends have not been favorable for Bitcoin’s performance.
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However, it would be naive to attribute Bitcoin’s weakness to a minor surprise in the US CPI data alone. Notably, the last time Bitcoin held above $62,000 was on August 2. The main catalyst for the correction from the July 29 peak of $70,000 was the stock market decline triggered by the Bank of Japan’s decision to raise interest rates. This move heightened investor risk aversion, and on August 5, the US 5-year Treasury yield closed at its lowest level since May 2023.
So Bitcoin’s negative performance on August 14 seems to reflect investors’ concerns about the possibility of a global recession. To give context, gold, traditionally seen as a hedge, is trading less than 2% below its all-time high. This contrasts with the S&P 500’s 5.7% gain over the past nine days, which can be misleading as it largely reflects the short-term impact of temporary US Federal Reserve actions.
One potential silver lining is that Bitcoin could be a valuable asset if the global economy fails to maintain momentum despite inflation trends. For example, during a recession, demand for credit typically declines and consumer spending declines, which can lead to lower inflation. This scenario, known as stagflation, could make a compelling case for Bitcoin’s bullish potential in 2025, but it is still too early to gauge the likelihood of this outcome.
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.