Markets
Where is the cryptocurrency market going? [July 19]
Where is the cryptocurrency market going? [July 19]
Bitcoin is nearing $70,000 and the cryptocurrency world is on high alert.
With us just 6% away from the all-time high, we are all wondering: what is driving this surge and where might we be headed?
Let’s take a closer look at the factors at play and what they could mean for the future of the market.
But before…
Why is Bitcoin rising in value?
The Bitcoin 2024 conference in Nashville just wrapped up and it was nothing short of fascinating. For the first time in cryptocurrency history, we saw major political figures from across the spectrum show immense support for Bitcoin.
Former President Trump he promised to create a “strategic Bitcoin reserve” if re-elected. This isn’t just talk, but a potential shift in how governments view cryptocurrencies as strategic assets.
Senator Cynthia Lummis took a step forward furthermore, proposing a plan for the US Treasury to acquire 1 million Bitcoin.
Even Robert F. Kennedy Jr., running as an independent, said he had “most of his wealth in Bitcoin.”
While this personal investment strategy may not have a direct impact on politics, it does demonstrate the growing acceptance of Bitcoin among political figures.
This level of political support is unprecedented.
In 2020, cryptocurrencies were barely a blip on the political radar. Now they’ve become a campaign issue, with potentially far-reaching implications for future policy and adoption.
Economic factors
While political support is grabbing the headlines, economic factors are providing the fuel for Bitcoin’s rise.
Inflation is showing signs of cooling, with the Personal Consumption Expenditures (PCE) index rising just 0.1% in June. This has led investors to speculate on potential interest rate cuts by the Federal Reserve.
Historically, when the Fed eases monetary policy, we have seen increased interest in risk assets like Bitcoin. The last time we saw a major bull run in 2020-2021, it coincided with unprecedented monetary easing in response to the COVID-19 pandemic.
However, it is important to note that the current economic landscape is different. We are not in a crisis situation, but rather navigating a post-pandemic recovery with its own unique challenges.
Institutional support
We are seeing a significant increase in institutional involvement, a trend that has been on the rise since the launch of Bitcoin ETFs in January.
The Michigan State Treasury recently disclosed its $6.7 million investment in the ARKB Bitcoin ETF. This follows the Wisconsin State Investment Board’s move to take a position in Bitcoin ETFs in Q1.
The story continues
These state-level investments are significant. They represent a shift in how traditional financial institutions view Bitcoin, not just as a speculative asset, but as a legitimate part of a diversified portfolio.
Even Bitcoin miners, often seen as natural sellers, are changing their stance. Marathon Digital’s recent announcement of a $100 million Bitcoin purchase sends a strong signal about their confidence in future price appreciation.
Where we might be headed
Historical Parallels: The Halving Cycle
To understand where we might be going, it helps to look at where we’ve been. Bitcoin operates on a four-year halving cycle, where the reward for mining new blocks is cut in half.
Looking back at the 2020 halving cycle, we saw Bitcoin hit its previous all-time high around 18 months after the event.
We are currently three months away from the 2024 halving, so if history holds true (and in the crypto world it often does), we could be in for some interesting months.
However, it is important to remember that past performance does not guarantee future results. Each cycle has its own unique characteristics, influenced by broader economic conditions and market sentiment.
Election Year Effects
The upcoming US presidential election adds another layer of intrigue to the cryptocurrency markets. In both 2016 and 2020, we saw significant market movements in the months leading up to and following the election.
This time, cryptocurrencies have become a campaign issue in their own right. The market reaction to political developments could be more pronounced than ever.
For example, Trump’s recent statements at the Bitcoin conference led to a significant price increase.
As the election approaches, we may see more volatility in response to campaign promises and policy proposals related to cryptocurrencies.
Regulatory landscape: navigating uncertain waters
The cryptocurrency industry has made significant progress in terms of regulatory clarity.
With the conclusion of major SEC lawsuits against some cryptocurrency companies, the industry is operating in a more defined regulatory environment.
Global Economic Factors: A Broader Lens
While much of our attention has been on events centered in the United States, it is crucial to consider the global picture. The last time Bitcoin approached these levels, we were in a very different economic climate globally.
Countries facing economic instability or high inflation rates may turn to Bitcoin as a hedge, potentially driving demand. We have seen this phenomenon in countries like Argentina and Turkey in recent years.
What to watch
As we approach the 2024 election, keep an eye on how candidates position themselves on cryptocurrency policy. Look for specific policy proposals, not just general statements of support.
Institutional interest
Monitor the flow of funds in and out of Bitcoin and Ethereum ETFs (you can check this data Here). Significant inflows could indicate growing institutional acceptance, while outflows could indicate declining interest.
Keep an eye on announcements from major financial institutions about cryptocurrency offerings or investments. Watch out for any moves by central banks or sovereign wealth funds regarding Bitcoin, which could be game-changing for mainstream adoption.