Bitcoin is showing signs of decoupling from recession worries in the U.S., with its performance increasingly tied to the U.S. dollar and potential shifts in monetary policy, according to ETC Group.
The bearish conditions that gripped the crypto markets in early August might have laid the groundwork for what could be a “tactical bottom for Bitcoin.” This outlook is being bolstered by the expectation of a more relaxed monetary policy from the U.S. Federal Reserve.
As per a report by ETC Group, market sentiment around cryptocurrencies dropped to its lowest level since the FTX collapse in November 2022, largely driven by rising concerns over a possible recession in the U.S. and a sudden appreciation of the Japanese yen.
However, recession fears quickly shifted towards expectations of a possible reversal in the Federal Reserve’s monetary policy. If the Fed begins to ease its policy, possibly by lowering interest rates or injecting liquidity into the economy, it could create a more supportive environment for Bitcoin, as looser monetary policies typically encourage greater risk-taking and investment in assets like cryptocurrencies.
André Dragosch, ETC Group’s head of research, noted: “We think the combination of the macro and crypto sentiment capitulation in early August most likely marked a significant tactical bottom in Bitcoin and consequently also marked the beginning of a renewed bull run.”
This sentiment was further supported when Fed Chairman Jerome Powell hinted during a meeting in Jackson Hole, Wyoming, that a policy reversal could be on the horizon. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell stated.
Dragosch pointed out that Powell’s comments suggest the Fed might be increasingly concerned about deteriorating labor market conditions, potentially leading to rate cuts as early as September.
“Our own market-based measure of monetary policy expectations is now clearly signaling positive expectations for monetary policy. This is bound to provide a positive tailwind for Bitcoin and other crypto assets over the coming month.”
At the time of writing, Bitcoin’s price stands at $58,385, reflecting a nearly 5% decline over the past 30 days. Despite this recent dip, Bitcoin has still achieved a 31% return in 2024.
ETC Group predicts that concerns over a U.S. economic slowdown are unlikely to significantly impact Bitcoin’s price. Dragosch’s analysis indicates that Bitcoin’s sensitivity to global growth expectations is decreasing, with its performance becoming more correlated with monetary policy and the U.S. dollar.
“Our macro factor model implies that Bitcoin’s performance over the past 120 days has been explained less by changes in global growth expectations (which have been a headwind) and more by other macro factors such as monetary policy expectations or the US Dollar (which have provided tailwinds),” Dragosch explained.
This shift suggests that Bitcoin is increasingly influenced by broader monetary trends rather than just economic growth forecasts, marking a significant change in how the cryptocurrency interacts with global financial conditions.
