5 mins- Bargain hunters & dip buyers lift BTC
- Concerns surrounding Mt Gox & German government disbursements remain
- Risk sentiment is boosted by rising Fed rate cut expectations
- S&P500 & Nasdaq100 rose to fresh record highs yesterday
- Bitcoin – Nasdaq 100 correlation has fallen 50% in 2-month
Bitcoin prices are rising on Wednesday, recovering some ground after recent losses, although sentiment remains fragile. Concerns remain over increased supply from Mt Gox and the German government. While improving risk sentiment has helped U.S. stocks to fresh all-time highs, the Bitcoin -stocks correlation has declined sharply.
Bitcoin has risen 2.8% over the past 24 hours, reaching a high of 59,000 as it recovers from a four-month low reached at the end of last week.
Dip buyers & supply worries
The world’s largest cryptocurrency is benefiting from bargain hunters who have been buying the dip and stepping back into the market. Investment products such as Bitcoin’s ETF are seeing rising inflows, supporting this trend.
Still, sentiment is fragile amid uncertainty over how many tokens will be sold as the defunct crypto exchange Mt Gox distributes part of its compensation for the hack over a decade ago.
Mt Gox was seen mobilising $9 billion worth of Bitcoin earlier this year, which, if tokens are sold, would increase supply, putting downward pressure on the price. Additionally, the German government has been offloading Bitcoin confiscated from a piracy website. The German government has been reportedly steadily selling its holdings of around $2 billion worth of Bitcoin.
While the Bitcoin-specific narrative has put pressure on cryptocurrency, the broader risk environment has been improving, helping U.S. stocks reach fresh all-time highs again this week.
US stocks rise to record highs
A series of weaker-than-expected US data, showing the labour market cooling and the economy slowing, has fueled expectations that the Federal Reserve would cut interest rates sooner rather than later. In his testimony before the Senate yesterday, Federal Reserve chair Jerome Powell acknowledged that the labour market had cooled considerably and that progress had been made with cooling inflation. However, he reiterated that policymakers will want to see more good data to increase confidence that inflation is cooling back to the 2% target level before reducing interest rates.
The market is now pricing in a 75% probability that the Federal Reserve will cut interest rates by 25 basis points at the September meeting, up from 56% just over a week ago.
Optimism surrounding rate cuts has helped to boost demand for riskier assets, lifting the S&P 500 to an all-time high of 5577, marking its 36th record high this year. While AI stocks have been a major driver of the rally in 2024, it was the banking sector that led the charge higher on Tuesday as investors look ahead to the start of earnings season on Friday.
Bitcoin Nasdaq, 100 correlation coefficient drops
However, strong stock gains are not reflected in the Bitcoin market. The 90-day correlation coefficient with the tech-heavy Nasdaq 100 has fallen to 0.21, its lowest level since early May. A coefficient of 1 indicates the 2 assets move perfectly aligned. A coefficient of -1 indicates they move in perfectly opposite directions.
Rising concerns over Bitcoin supply, which could be hitting exchanges imminently, have resulted in the decoupling of the Nasdaq100 Bitcoin correlation.
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