Bitcoin (BTC) has encountered a turbulent start to the second half of 2024, dropping over 11.7% in July. This decline is driven by concerns over the market impact of Mt. Gox’s reimbursement of over 140,000 BTC to its clients and the German government’s BTC liquidations. Despite hitting a five-month low of $53,905, several indicators suggest a possible rebound for the world’s largest cryptocurrency.
Optimism for Bitcoin’s recovery is bolstered by the increasing likelihood of interest rate cuts in September. As of July 7, Wall Street traders estimated a 72% chance that the Federal Reserve would reduce interest rates by 25 basis points, up from 46.60% a month earlier, according to CME data. This expectation is driven by a slowdown in U.S. hiring, which typically prompts the Fed to cut rates to stimulate economic activity. Lower interest rates generally benefit Bitcoin and other riskier assets.
Another positive sign for the BTC market is the resumption of inflows into U.S.-based Spot Bitcoin exchange-traded funds (ETFs) after two days of outflows. On July 5, following weak unemployment data from the U.S., these funds attracted $143.10 million worth of BTC, according to Farside Investors, indicating increased risk appetite among Wall Street investors. The Fidelity Wise Origin Bitcoin Fund (FBTC) led these inflows with $117 million.
Additionally, a recent rise in the U.S. M2 money supply, which includes cash, checking deposits, and easily convertible near-money, supports a bullish outlook for Bitcoin. As of May 2024, the M2 supply grew by approximately 0.82% year-over-year, reducing its decline from a peak drop of 4.74% in October 2023 to around 3.50%. This increase in money supply enhances liquidity, encouraging higher investments in riskier assets like Bitcoin when traditional investments yield lower returns.
Lastly, Bitcoin miner capitulation metrics are nearing levels observed during the market bottom following the FTX crash in late 2022, suggesting a potential bottom for BTC. Miner capitulation occurs when miners scale back operations or sell their Bitcoin reserves to remain viable. Over the past month, Bitcoin’s price dropped from $68,791 to as low as $53,485, while the hashrate decreased by 7.7%, hitting a four-month low of 576 EH/s. As weaker miners exit or reduce their activity, more competitive miners could see increased profits, potentially stabilizing operations and lessening the need to sell BTC.
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