Many investors and traders have been confused by the stagnation in the Bitcoin price, despite the US Federal Reserve’s first rate reduction since 2020. Andrew Kang of Mechanism Capital, the CEO, addressed in a recent post on X how market participants place an excessive amount of emphasis on Federal Reserve rates cuts and China’s economic stimulus.
Why Has Bitcoin Stagged?
Kang challenges Market belief is that of interest rate cuts by the Federal Reserve Bitcoin and cryptocurrency prices are expected to rise dramatically. “Fed rates are only one of the factors that impact global liquidity, and global liquidity itself is only one of the factors that influence crypto prices,” He said. Kang finds it “nonsensical to see BTC rally 4.5x during a period where rates were going to and at multi-decade highs—showing little correlation between rates and BTC—and then expect a strong inverse correlation to present itself as soon as rates start going down.”
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He admits some people argue that future rate changes have already been priced in the market, but counters this logic by saying that it should be applied equally to both rate increases and rate cuts. “This is not to say that rates are not important, but rather that they are well overweighted by most market participants,” Kang added. He points out that the equities market is more closely tied to interest rates because of factors such as discount rates, which are used for valuing future cash flows, and maturing corporate debt markets.
Kang, in his response to China’s recent stimulus economic program, observes that the impact of this on Bitcoin and cryptocurrency is less than most people believe. “It’s not surprising to see that the people extrapolating China stimulus as being extremely bullish for crypto are primarily non-Chinese,” He commented. Kang says that in China, people have noticed a change from investing in crypto to stock A shares.
Kang backed up his claims with facts. “Since Chinese stimulus was announced, USDT has traded to a discount to CNY. Still at 3% as of recent.” It is likely that the demand for Tether, China’s premier stablecoin (USDT), has decreased in China. This coincides with an increase in traditional equity investments.
Kang is clear that, despite his criticisms of Bitcoin, he does not believe it to be a bear market. “I just think that some people have gotten over their skis a little,” He commented. Kang expects Bitcoin to trade in a range between $50,000 and $72,000, until an important new catalyst appears.
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He is still optimistic, however, about the opportunities on the market. “The constant rotation of capital and new projects being developed means there will still be coins to buy to generate returns as a bull.” Kang does warn of the potential for volatility due to leveraged position: “The markets will be still prone to small corrections even if leverage gets too high “(decently high at the moment)”
Jakubko, a X community member (@erkousti), suggested in interacting with the community that Bitcoin’s price rise of 2023 is more related to an ETF launch rather than interest rates. Kang concurred, responding, “That’s exactly my point. Interest rates are only a small piece of the puzzle. Even though they were negative for BTC, other factors like the ETF were able to drive BTC price higher. Other factors could drive it higher or lower here. We are not guaranteed infinity prices just because of rate cuts.”
Crypto analyst Astronomer commented (@astronomer_zero). “I believe interest rates (and yield inversion) only have a negligible impact on price. They are rather a holistic metric important for bond market players. But the zero-effect on stocks or crypto is proven already.”
Res is another analyst (@resdegen). highlighted Bitcoin’s correlation with monetary demand: “BTC is more correlated to the quantity of money than interest rates. It started to rise as the RRP decreased, which ended up in net positive liquidity, regardless of interest rates, which were indeed close to the top.”
BTC is currently trading for $60,903.
Featured image was created with DALL.E chart by TradingView.com
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Source: www.newsbtc.com
