[TL; DR]
Bitcoin may face stiff resistance at $61K level in its path towards $65,000.
There is a high probability that the United States may cut interest rates in September.
Bitcoin may reach $100,000 by end of year if there is an increase in funds inflow into BTC ETFs.
Introduction
Macroeconomic factors are key in determining values of various investment assets including stocks, commodities and cryptocurrencies. Currently, the markets are waiting for the announcement of the United States monetary policy which has a big impact on the performances of different crypto assets. Following Jerome Powell’s hint investors anticipate that the United States may cut interest rates in September. If that happens, that can give the crypto market an extra push.
Bitcoin's Anticipated Breakout amidst Powell's Remarks
During the fourth week of August prices of various cryptocurrencies reacted to Federal Reserve Chair Jerome Powell’s hint that the United States might cut interest rates in September. Based on the Federal Reserve officials, the long awaited interest rates cut is most likely to be announced at their next meeting. However, during the beginning of the third week the market was anticipating that Powell would give a clear indication of the possibility of the Fed’s position on interest rates adjustment during his address at the Fed’s annual Jackson Hole Economic Policy Symposium expected on 25 August.
The Annual Symposium came at a critical point for the United States which is grappling with several economic challenges including high inflation. On the other hand, the interest rates have been at one of the highest levels in decades. Although high interest rates have helped to reduce inflation they have also slowed down its economic activity which has led to a possibility of a recession. However, the threat of a recession was quelled by the consumer report which showed a slight decrease in unemployment level.
During previous months, however, unemployment had been rising. That trend has influenced the Federal Reserve to consider reducing interest rates. Although in the past few years the policy makers had been focusing mostly on inflation, recently they indicated that they are now worried about the level of unemployment in the country. With this background, on 25 August, during Powell’s speech, the investors were looking for hints on the possible direction U.S monetary policy would take, including the magnitude of interest rates cut. Nonetheless, before his speech the market predicted a 73.5% possibility of a basis points rate cut. In General terms, the investors expected the Fed to ease interest rates by a total of 99 basis points by year end. Permutations on Interest Rates Cut in United States: x.com/Brett
As observed in the above comments, some analysts believe that the Federal Reserve may reduce interest rates. However, at the July Fed meeting the officials elected to leave the funds rate at its existing level.
Market Analysis: Deciphering Powell's Impact on Crypto
Before his 25 August speech the market did not expect Powell to deviate much from the speech he gave in July after their Fed meeting. Analysts believed that he would confirm that the Fed is willing to ease the Funds rate as soon as the market fundamentals indicate so. Its main focus will be on the labour market situation in the country.
Although the debate continues as to whether there will be a 25 or 50 basis points easing the market is sure that a rate cut is coming. For example, Kobeissi letter said, “The question is no longer whether the Fed will cut rates or not. The question is will they cut rates by 25 or 50 basis points in September. Today’s jobs revisions don’t help with labor market confidence.”
The possibility of a rate cut would be good news not only for bitcoin but the entire crypto market. A confirmation of a rate cut may turn out to be bullish on the crypto market. Based on past bitcoin trends, a rate cut would enable investors to increase investment in digital assets including cryptocurrencies. This is because the investors will be able to access cheaper money they can invest in riskier assets like bitcoin.
In the past the crypto market performed remarkably when the rates were lower than their current level. For example, the interest rates were between 0.75% and 1.25% during the 2017 ICO boom and crypto bull run. The same occurred during the 2020-2021 crypto bull cycle when interest rates were near zero. During that period the bitcoin price surged by over 1,000%.
Read also: NFTs and Memecoins in Last vs Current Bull Markets
Bitcoin's Price Dynamics Post-Powell Speech
The bitcoin news related to the possibility of interest rates cut in the United States led to a bullish period that occurred around mid-August. The effect of the news on the crypto market became pronounced after Federal Reserve Chair, Jerome Powell, hinted that the rate cut may occur in September. For example, there was a bitcoin price breakout within the 24-hour period that stretched from 23 to 24 August. As a result of that surge bitcoin reached a value of $64,173.35 and a market capitalization of $1.2 billion. However, the bitcoin price has since dropped below $59,000.
The Path to $61K: Market Forces at Play
At the time of writing bitcoin is selling at $58,920.48 after losing value by 8.3% within the last 7 days. This means that bitcoin has to break above $61,000, a key resistance level. There are several challenges which bitcoin may face to retain that price level.
First, since the fourth week of August there has been low capital inflows into bitcoin ETFs. Such modest inflows show low investor interest. Based on bitcoin market analysis its price will likely rise sharply only if there is considerable funds inflow into the ETFs. The following table shows low inflows into BTC ETFs between 19 and 22 August. Bitcoin Spot ETF Net Inflow - Fxstreet
Also, recent data shows that Bitcoin OTC desk balances for miners has increased by 70% within the last three months. For example, it increased from 215,000 BTC in June to 368,000 BTC in August. This is its highest level since June 2022, showing the miners’ preparedness to increase their selling activity. The next graph shows the rise in Bitcoin OTC desk balances for miners. Bitcoin OTC Desk Balances for Miner – CryptoQuant
Bitcoin investor Strategy in Focus
Considering that bitcoin has recently fallen from $64,000 to the current price of $58,920.48 the best bitcoin investment strategy that investors can use is the “buy the dip” one. The difference between the two above prices is $6,000 which can justify the need to buy the dip. This is because bitcoin may break above $64,000 and $65,000 in its path towards $100,000. However, the main question is when to buy the dip. Some investors may need to buy at the current value while others may need to wait for a further price fall.
Related news: How to Position for the Next Bull Run
Conclusion
Bitcoin may reach new highs before the end of the year. There is still a high chance that it may reach $100,000. However, for that to happen the bitcoin ETF market should have much inflows in coming weeks and months. The other expectation is that the deflationary effects of the halving event that occurred in April may show its impact in the final quarter of the year. If that happens bitcoin may reach $100,000.