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To determine the optimum time to buy bitcoin and the dangers associated with doing so, we examine the most recent developments in bitcoin, including macrorisks and on-chain/flow data.
We are negative on bitcoin trading over the next two to four weeks. Thus, we should anticipate declining pricing.
But overall, we are bullish and believe that bitcoin is a smart long-term investment over the next one to three years. Therefore, we anticipate a long-term increase in the price of bitcoin.
Recently, the price of bitcoin has increased. For July, it is currently up almost 20%. We know that crypto is now highly connected with tech stocks (at the moment, bitcoin’s correlation to the NASDAQ is approximately 65%), which is why a rally in tech stocks in Europe and Asia contributed to the surge. However, if we slightly zoom out, we are instantly reminded that bitcoin is still experiencing a cumulative fall of 62 percent from the all-time highs in November 2021.
With the Fed boosting rates by 75 basis points in June and July to combat a 40-year high in inflation, the cryptocurrency markets have continued to respond unfavourably to news about inflation and rate hikes. Additionally, the dollar is rising as investors steer clear of risky investments, which might have a detrimental impact on the price of bitcoin.
Recession risks are rising, in our opinion, and the Fed’s aggressive hiking cycle is not yet over. Thus, macro is having an impact on cryptocurrency. So, how much lower could cryptocurrency sink? Are we at a point of great undervaluation, or is there still room for additional significant downside? The macro environment for bitcoin, in our opinion, could become considerably worse. First, we have a negative outlook for stocks. Second, we believe the Fed will raise rates more than they are now expected to: Dominique anticipates another 175 basis points this year. She anticipates that the Fed Funds rate will eventually reach 8%. US 2Y yields would rise significantly as a result. Both would be extremely harmful to bitcoin. If it drops, we might expect it to reach $16,000 or perhaps $8,250.
The overall macro environment for bitcoin
Cryptocurrency markets nearly appeared to be partially immune to the tech sell-off and rising risk aversion. However, recent price movements have disproved that theory. Bitcoin’s comparatively stable period between mid-January and mid-April, during which it choppy trended upward with higher highs and higher lows, was only the calm before the storm. Since reaching a high of $67,734 in November, bitcoin has decreased by 67%. (Chart 2 is a BTC price chart). And there will probably be more.
The main issue is that US interest rates are going up. Since the global financial crisis of 2008, years of low interest rates have caused markets to attain astronomical heights. If computer companies can easily borrow money, who cares if they are losing money? And if businesses are unable to borrow money, they may be able to get money from investors who, like them, have probably borrowed money.
The assistance from low-cost leverage in the fiat markets has not spared the cryptocurrency markets. After all, cryptocurrency offers the scalability and regulatory arbitrage of the tech dream. The recent dips in cryptocurrency as US rates have risen should dispel any doubts about it not benefiting from low interest rates.
Additionally, the rise in US interest rates coincided with a strong surge in the connection between bitcoin and the NASDAQ. This has happened frequently throughout history. The correlation between various assets soars when the liquidity tap is shut off, which is often accomplished by central banks raising rates. Nothing seems to have changed this time.