Bullish Drivers Remain In Play Despite Germany’s Bitcoin Sales and Mt. Gox Reimbursements

Despite some current challenges, such as excess supply from Germany and claims from Mt. Gox creditors, the overall outlook for the market is optimistic. Once these issues are resolved, there’s potential for a significant market rebound.

G-7 in the expansion phase

During times of robust economic growth, investors tend to be more eager to invest in riskier assets such as bitcoin and stocks.

As a researcher studying economic trends, I can tell you that the G-7 economies, which consist of advanced industrialized nations, are currently undergoing an expansionary phase in their business cycles based on the data from the Organization for Economic Co-operation and Development (OECD). This means that these economies are growing at a relatively fast pace despite the fact that interest rates are already quite high according to the OECD’s composite leading indicator.

As an economic analyst, I would interpret the crossing of the short-term economic indicator above 100 and its continued rise as a sign of robust and accelerating growth for the major economies being monitored by TS Lombard.

CPI to boost Fed’s confidence

According to a poll of economists conducted by The Wall Street Journal, the upcoming June consumer price index report from the United States Bureau of Labor Statistics is predicted to indicate a year-over-year rise in living expenses of 3.1%, representing a deceleration from the 3.3% annual inflation rate recorded in May.

A slower-than-expected development could signify ongoing advancement towards the Federal Reserve’s 2% goal, thereby bolstering the argument for the central bank to initiate lowering key interest rates in 2021.

As a researcher studying financial markets, I’ve observed that recent decreases in interest rates have increased the appeal of riskier assets, such as Bitcoin. The subpar Consumer Price Index (CPI) reports released early this year have sparked significant investments into spot Bitcoin Exchange-Traded Funds (ETFs). Consequently, Bitcoin’s market worth has experienced a noticeable uptick due to these inflows.

Economists at Bank of America predicted that the monthly rate of headline Consumer Price Index (CPI) growth decreased by 0.1%, primarily due to another decline in energy prices. This decrease would lead to a 0.1 percentage point lower annual rate of 3.2%. The NSA index was estimated to read 314.770. Simultaneously, they anticipate core CPI rising by 0.2% monthly.

If the Core Consumer Price Index (CPI) figure matches our forecasts when it is released, economists anticipate that the Federal Reserve will initiate its interest rate reduction cycle in December. They further explained that a 0.2% month-over-month increase in the core CPI would enhance the likelihood of an early monetary policy adjustment.

Record tech optimism on Wall Street

Bitcoin’s preferred direction lies upward, given Wall Street’s ongoing surge of tech enthusiasm as indicated by all-time highs in the Nasdaq composite index (NDX) relative to the S&P 500 index (SPX).

Starting from early 2017, the price trend of bitcoin has closely followed the relationship between the NDX (Nasdaq Composite Index) and the SPX (S&P 500 Index). During phases when tech stocks showed stronger performance compared to the S&P 500, bitcoin experienced significant surges.

Additionally, fears of a stock market collapse in the United States, which could negatively impact other risk assets, might be unwarranted since the equity market does not seem to be experiencing a bubble at present.

As a researcher studying U.S. equity markets, I’ve noticed that whenever margin debt rises, there are concerns about a potential market bubble. However, I want to emphasize that this situation differs from past bubble episodes, such as the one we experienced in 2020-21. The reason being is that margin debt is currently growing at a slower pace than the equity market capitalization. Instead of fueling equity performance, it seems more likely that it’s a result of market conditions. This observation aligns with TS Lombard’s assessment in their July client note, which highlights the unfavorable environment for leverage increases due to high interest rates.

As a researcher examining the current state of the U.S. equity market, I’ve observed that investor positioning is relatively balanced in both the S&P 500 and Nasdaq futures. This suggests we are not yet in bubble territory.

As a crypto investor, I’ve noticed that gold has remained relatively stable in the current market landscape. This stability suggests a robust macroeconomic backdrop that favors the appeal of non-traditional investment options such as Bitcoin.

Based on historical trends, I’ve observed that following a reward halving event in the Bitcoin network, there is typically a period of several months marked by significant price corrections, often exceeding 10%. We experienced the fourth such halving in April of this year.