Bitcoin accumulates so far this year a decrease of 49.35% and in the last six months of 37%. These falls come after central banks have had to make a move by raising interest rates to combat inflation in the world’s major economies. Risk assets, such as shares or cryptocurrencies, have corrected strongly during this 2022 and everything indicates that the market will continue to show weakness until the markets anticipate a stabilization of rates.
Since the pandemic began, the correlation between actions with a growth bias, such as those of technology companies, and bitcoin has become more palpable after the significant investment made by companies in the sector such as Tesla, MicroStrategy, Coinbase, Square … The cryptocurrencies during these last years of great volatility in the stock markets have not served as a refuge asset nor has it served to de-correlate how it was evangelized at the beginning and they move, in essence, to the sound of the Nasdaq or the great technology companies of Wall St.
“Bitcoin’s fortunes, at least in the short to medium term, continue to be hitched to the bandwagon of other long-lived growth assets like tech stocks,” says Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence in a blog post. report.
The rebound of bitcoin that began to take shape since June coincided with the growing expectations of investors that inflation has reached its maximum and therefore the Federal Reserve will begin to cut interest rates from March 2023. Some perspectives which were compounded by Federal Reserve Chairman Jerome Powell’s statement on July 27 where he noted “as the monetary policy stance tightens further, it is likely appropriate to slow the pace of increases while we assess how our monetary policy adjustments are affecting the economy and inflation.
However, the dot plot from the latest Fed meeting shows that most bankers expect rates to hit a level of 3.75% by the end of 2023, before falling back to 3.4% in 2024. This week is the Jackson Hole meeting, so any statement could move the stock market and also cryptocurrencies.
In September, the Fed could raise the cost of money for the third time in a row by 75 basis points. A strategy that has already been announced that supports the president of the St. Louis Fed, James Bullard, with the Fed’s commitment to reduce inflation to 2% from the current level of 8.5%. “Given that inflation remained well above the Committee’s target, the participants considered that it was necessary to adopt a restrictive policy stance in order to fulfill the legislative mandate of promoting maximum employment and price stability,” the latest minutes of the the Fed’s July meeting.
In fact, the publication of these Federal Reserve minutes on August 17 explains the slowdown in the markets in recent days after the bullish rally experienced in the first half of August. As long as the market does not estimate that interest rates will stabilize in the US, the red numbers may continue to penalize growth stocks and cryptocurrencies.
The dollar exceeds parity with the euro
Another headwind for bitcoin is the strength shown by the US dollar against most majors, with the indicator rising to the highest level in more than a month. “In bitcoin’s short existence, it has had a relatively strong inverse relationship with the DXY dollar index,” says Sean Farrell, digital asset strategist at Fundstrat.
The price of the euro against the dollar has briefly returned to below parity this Monday in view of the prospects that point to a growing risk of recession in the euro zone and the expectation that at the end of this week they will meet in Jackson Hole, representatives of the United States Federal Reserve and other central banks.
In this way, the exchange rate for the euro against the ‘green ticket’ fell this Monday to 0.9992 dollars from the 1.0034 dollars of the previous closing, although after the opening of the stock markets of the Old Continent the European currency recovered part of the lost ground and went on to trade for $1.0010.