In preparation for the Federal Reserve to end Quantitative Strictness (QT), bitcoin price We are at an important macroeconomic turning point. As the odds are almost certain that a December interest rate reduction will occur, the scene is now set for an eventual shift in the monetary policy which could have a fundamental impact on the performance of Bitcoin as well as other risky assets. The history suggests that Bitcoin experiences bullish trends when the Fed balance sheet ceases to contract.
Bitcoin and Balance Sheet Reversals
Fed balance sheet chart against Bitcoin chart shows a convincing pattern. In the history of Bitcoin, only three times has QT been ended while federal balance sheets have flattened or expanded. On October 27, 2010 a Bitcoin bull run was almost immediate. On September 26, 2012, a similar explosive rise occurred into the double-peak 2013 cycle. The third signal came in 2019, though this one was complicated by the COVID-19 pandemic and initial market crash—yet it eventually drove Bitcoin from around $3,000 to over $67,000.
Bitcoin Prices and the Business Cycle
Bitcoin’s recent inability to increase despite Global M2 increasing suggests that money liquidity alone does not drive prices. The asset is more closely correlated to traditional business cycles indicators such as the U.S. Purchasing Managers Index. This metric measures manufacturing confidence and economic activity, and its correlation with S&P 500 yearly returns is striking: when PMI rises, equities typically deliver outsized returns; when PMI falls, markets enter periods of underperformance or recession.
Copper-to-gold is an indicator that can be used to predict PMI trends. It is a nearly perfect correlation, yet copper usually leads. Copper bottoms out ahead of PMI rallies or tops before PMI drops. Copper/Gold seems to be at a bottom, which is in line with history of Fed balance-sheet reversals. It is possible that the business cycle will soon turn positive again following a period when economic growth has been softened.
The Next Step for Bitcoin Prices
This is because the end of QT combined with an accelerated Copper/Gold rate and historical precedents spanning Bitcoin’s existence suggest that financial conditions are set to improve materially. Bitcoin’s recent underperformance is not due to fundamental weaknesses in Bitcoin, but rather a deteriorating economy. The convergence of both business cycle and monetary indicators could be the start of an important trend reversal. Bitcoin will benefit from both of these tailwinds. It is therefore important to monitor whether the historical signals are finally translated into sustained price increases in the coming months.
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Disclaimer: This is not financial advice. It’s just for informational purpose. Do your research prior to making investment decisions.
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Source: bitcoinmagazine.com
