Bitcoin experienced a rough Fourth of July, dropping over 10% for the week. However, according to Zach Pandl, Grayscale’s Head of Research, a rebound could still be on the horizon.
Pandl joined Coinage to discuss the tradeoffs of Germany’s significant Bitcoin sell-off and two potential bullish catalysts: a possible dovish shift from Federal Reserve Chair Jerome Powell and the upcoming debut of Ethereum ETFs.
“We’re at a point in this market where fundamentals are going one way and technicals another,” Pandl noted in a Monday interview. “The fundamentals for Bitcoin still look quite positive.”
Over the past week, Bitcoin fell from about $63,000 to just under $54,000 on Friday, prompting investors to invest more than $140 million into Bitcoin ETFs in an effort to buy the dip. Despite this, Germany’s ongoing sale of over $3 billion in Bitcoin seized from an online pirated movie site continues to dampen market expectations. The remaining $2 billion in Germany’s possession represents about 9% of recent daily volumes, potentially driving prices further down, below the $56,000-$58,000 range where newer buyers have entered.
“Technical patterns are an important part of risk management and investing, and if that were the only thing that I was looking at, I probably would be more cautious as well,” Pandl said. However, he remains optimistic about a potentially softening dollar in the latter half of 2024, as the Fed prepares for possible rate cuts. “We need to look at the whole picture and to me that’s a much more positive outlook.”
Despite only a 7% chance of the Fed cutting interest rates at the July meeting, Pandl predicts that Fed Chair Powell might start signaling a September rate cut this week during his testimony before Congress or by the end of the month. Recent job reports indicate a softening labor market, and inflation data appears to be improving.
“If they’re lowering [interest rates], that will be positive for Bitcoin, and we’ve seen exactly this pattern play out over the last couple of years,” Pandl explained. “The Fed cut aggressively during the pandemic and Bitcoin’s price took off. The Fed realized there was too much inflation and raised rates aggressively; Bitcoin’s price declined. This relationship between Fed rate cuts and the price of Bitcoin is not just theoretical; it’s exactly the pattern that we see play out in the data.”
Beyond Bitcoin, the cryptocurrency market could receive a boost from the debut of Ethereum exchange-traded products. Analysts predict ETH ETFs could attract up to $5 billion in inflows within their first five months of trading. Pandl agrees that the debut could reinvigorate investor interest and potentially lead to another rally, similar to Bitcoin’s post-ETF 50% surge in the spring.
“What we saw is that those inflows had a dramatic effect on Bitcoin’s price in the first half of this year,” Pandl said. “I think it would be mistaken to be overly concerned about Ethereum right before an event like this. I’m very excited about a relatively attractive entry point for medium-term allocations.”
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