The key takeaways
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The strong demand for US Treasurys, and the lower chances of a Fed interest rate reduction indicate that investors have shifted to safer assets. Bitcoin is therefore less popular.
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Bitcoin’s use as an investment hedge is limited in the near-term due to economic weakening in Japan and softer US jobs data.
BitcoinBTC( has failed to maintain above $92,000 over the last month. Market participants have come up with multiple reasons for this price decline. Some traders attribute the fall to market manipulation while others blame the rise in concerns about the artificial intelligence industry, even though there is no concrete evidence supporting these claims.
The S&P 500 traded just 1.3% below its all-time high on Friday, while Bitcoin remains 30% below the $126,200 level reached in October. This divergence is a reflection of increased risk aversion on the part of traders. It also undermines any narrative about fears that an AI-driven bubble will cause broader market decline.
Bitcoin may be decentralized, but gold is the ultimate long-term investment. preferred hedge Despite the ongoing uncertainty in economic conditions,
Fed balance sheet reduction drains liquidity, capping Bitcoin near $90K
The US Federal Reserve’s strategy of reducing the balance sheet until 2025 is a major factor in Bitcoin not being able to reach $90,000. draining liquidity From financial markets. In December this trend changed as job growth slowed and consumer data weakened, raising concerns over future economic growth.
Target’s fourth-quarter profit outlook was cut on December 9 while Macy’s warned that inflation will pressure margins for year-end shopping. Nike’s shares fell 10% Friday after its quarterly sales were reported on December 18. In the past, reduced consumer expenditure has created an environment that is bearish for assets perceived to be higher-risk.
Even though there are clear signs of the US Fed moving towards a less-restrictive monetary policy in 2020, investors remain uncertain as to whether it can cut rates below 3.5% by 2026. The 43-day US Government funding shutdown has contributed to this unease. It prevented the publication of the November inflation and employment data, and further clouded economic prospects.
According to CME FedWatch Tool, the odds of a rate reduction at the FOMC’s meeting on January 28 dropped to 22% from 24% in the previous week. The demand for US Treasurys was also strong, as the yield on 10-year Treasurys held at 4.15 percent, after having briefly fallen below 4 percent in November. The behavior of traders indicates a growing fear of risk, which is contributing to the decline in demand for Bitcoin.
Bitcoin’s correlation with the traditional market has declined, but it does not imply cryptocurrency investors are immune to softer economic conditions. Contagion risk has increased due to the weak demand of Japanese government debt. For the first time in 1999, the 10-year yields are above 2%.
Related: Bitcoin dips below $85K as DATs face ‘mNAV rollercoaster’: Finance Redefined
The yen is the currency of Japan, which has $4.13 trillion in monetary value. Japan’s GDP contracted by 2.3% annually in the 3rd quarter, despite its negative interest rate policy for more than 10 years and currency depreciation as a means to promote economic growth.
Bitcoin’s struggles near $90,000.0 level is due to uncertainty surrounding global growth, and weakened US labor market statistics. The positive effect of lower interest rate and stimulus on risky assets will diminish as investors get more cautious. Bitcoin, therefore, is unlikely to be an alternative currency, even in the event of a resurgence of inflation. alternative hedge Near-term.
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Source: cointelegraph.com
