As a seasoned crypto investor with over a decade of experience navigating market cycles and trends, I find myself nodding in agreement with Andrew Kang’s recent insights. The notion that Fed rate cuts alone can significantly impact Bitcoin prices has been a popular belief among many investors, but as Kang rightly points out, it’s just one piece of the puzzle.
The Bitcoin price remaining unchanged even after the US Federal Reserve’s first interest rate reduction since 2020 has left numerous investors and traders in the market puzzled. In a recent article on X, Andrew Kang, CEO of Mechanism Capital, discussed the excessive focus that market participants have given to Federal Reserve rate adjustments and economic stimulus in China.
Why Is Bitcoin Stagnating?
Kang questions the common assumption that decreases in interest rates by the Federal Reserve will lead to substantial increases in Bitcoin and cryptocurrency prices. He explained, “Interest rate adjustments made by the Fed are just one aspect of global liquidity, and global liquidity is merely one factor among several that determine crypto market values.” Kang finds it illogical to expect a strong negative relationship between Bitcoin’s price and interest rates when the data shows little correlation between the two during periods where rates were at historic highs. In other words, he suggests that there may be more factors at play in determining Bitcoin prices than just changes in interest rates.
He acknowledges that some argue future rate changes are already priced into the market but counters that this logic should apply equally to rate hikes and cuts. “This is not to say that rates are not important, but rather that they are well overweighted by most market participants,” Kang added. He notes that equities have a stronger tie to interest rates due to factors like discount rates used in valuing cash flows and mature corporate debt markets used to finance growth.
Regarding China’s recent economic stimulus, Kang points out that its influence on Bitcoin and cryptocurrencies is less impactful than some may think. He stated, “It’s not unexpected that those outside of China are forecasting a highly bullish crypto market based on this stimulus, but the Chinese population has moved more towards investing in A-shares in the stock market instead.
Kang provided evidence by stating, “After the Chinese stimulus was unveiled, USDT has been trading below the Chinese Yuan. As of late, this difference stands at about 3%. This could indicate a decline in the demand for Tether (USDT) in China, which might be shifting towards traditional stock investments.
Regarding the criticism directed at him, Kang wants to make it clear that he isn’t negative towards Bitcoin. He simply believes that some investors might have gotten a bit too excited and may need to adjust their positions slightly. In his view, Bitcoin will continue to trade between $50,000 and $72,000 until a major catalyst arises in the market.
Despite his upbeat outlook on market prospects, he emphasizes that “the ongoing cycle of investment and emerging projects ensures there are yet-to-be-purchased coins offering potential returns as a bull.” However, Kang cautions about the possibility of fluctuations: “The market might experience minor corrections if leverage levels become excessively high (which they currently are to some extent).
User Jakubko (@erkousti) proposed that Bitcoin’s 2023 price growth might be more tied to the anticipated launch of an ETF rather than adjustments in interest rates. Kang agreed, stating that while interest rates may have a minor impact on BTC prices, factors like the ETF were instrumental in raising the price of Bitcoin. Other influencing elements could potentially push the price up or down, and it’s important to note that lower interest rates alone do not ensure infinite Bitcoin prices.
In line with this viewpoint, financial analyst Astronomer (@astronomer_zero) stated, “I think that interest rates (and yield inversions) have minimal influence on prices. Instead, they serve as a comprehensive indicator significant for bond market participants. However, it has been demonstrated that they exert no effect on stock or crypto markets.
A different analyst, Res (@resdegen), pointed out a connection between Bitcoin and the amount of money circulating: “Bitcoin appears to be more connected to the volume of money than interest rates. Its value increased as the Required Reserve Repurchase (RRP) decreased, leading to a surplus in liquidity, regardless of the fact that interest rates were almost at their peak.
At press time, BTC traded at $60,903.
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2024-10-10 16:16