02 Sep Bitfinex Alpha | What happens to BTC when the price drops?
On Bitfinex Alpha
This month’s US rate decision is expected to have a significant impact on Bitcoin’s short-term volatility and long-term trajectory. Since early August, Bitcoin has gained over 32% as traders anticipate dovish comments from the Fed. A 25 basis point cut would likely signal the start of a typical easing cycle, which could lead to a longer-term price rally for Bitcoin as liquidity increases and recession fears ease. On the other hand, a more aggressive 50 basis point cut could trigger an immediate surge in price, but could be followed by a correction as recession fears grow. Last week, we saw spot holders reduce risk while perpetual market speculators attempt to “buy the dip,” and we continue to see significant long positions in BTC perpetual bonds.
If I were to guess, I would expect a 15-20% drop this month when rates are cut, and a BTC floor of 40-50k. This is not an arbitrary number, but based on the fact that the cycle peaks in terms of percentage returns have been decreasing by about 60-70% per cycle, and the average bull market correction has also decreased. However, this logic can be invalidated quite easily if the macroeconomic situation changes. It is an uncertain time for traders.
Historically, September has been a volatile month for Bitcoin, with an average return of -4.78% and a typical peak-to-trough drawdown of around 24.6%. This volatility, combined with the potential for a “news sell” reaction following a rate cut, could present both risk and opportunity for traders. Meanwhile, as Bitcoin’s correlation with traditional risk assets such as the S&P 500 increases, its price action is likely to be closely tied to global macroeconomic conditions. Actions by other major central banks, such as the ECB’s possible pause in rate hikes amid slowing growth, the BOJ’s cautious approach amid a slowing economic recovery, and the PBOC’s targeted liquidity measures to support slowing growth in China, are likely to send ripples across global markets and impact digital assets such as Bitcoin.
The U.S. economy continues to benefit from persistent disinflation, strong household spending, and wage growth that is outpacing inflation. The Federal Reserve’s preferred inflation measure, the PCE index, rose 2.5% in July, indicating persistent disinflation and strengthening price stability across the economy. Earlier recession concerns were alleviated as second-quarter GDP growth was stronger than expected, leading to an upward revision to an annualized 3% from a previous estimate of 2.8%.
However, the housing market faced challenges in July, with pending home sales hitting record lows and falling mortgage rates not stimulating market activity. Despite these setbacks, we remain optimistic that the downturn will be temporary, and we expect further declines in mortgage rates and the end of the election year to help the market regain momentum. Meanwhile, U.S. consumer confidence rose to a six-month high in August, buoyed by optimism about the overall economic outlook, but concerns about the jobs market remain.
Across the cryptocurrency industry, we also see a growing trend of political and regulatory engagement, along with significant progress in transaction infrastructure and market adoption. Presidential candidate Donald Trump has announced a strategy aimed at positioning the United States as a global leader in crypto, particularly through a partnership with decentralized finance project World Liberty Financial.
With these political changes, the 24X National Exchange has submitted a proposal to US regulators to launch a stock exchange that would allow 24/7 trading of cryptocurrency ETFs. Meanwhile, Australia has emerged as a major player in the global cryptocurrency market, with the number of cryptocurrency ATMs increasing 17-fold in the past two years, making it the third-largest market in the world. However, this rapid expansion has also raised concerns among authorities about the potential use of these ATMs for money laundering. In response, a multi-agency task force has been formed to address these issues, highlighting the ongoing tension between innovation and regulation in the cryptocurrency landscape.
Have a nice trading day!