More Pain Likely, Market Expert Says After Bitcoin’s Biggest Loss Since August

What to know:

As a seasoned crypto investor with a knack for spotting trends and interpreting market signals, I find myself cautiously optimistic amidst the current turbulence in the market. Having witnessed the unprecedented BTC rally led by Andre Dragosch’s bullish predictions, I can’t help but feel a sense of deja vu.

The Europe chief researcher at Bitwise, who has consistently predicted a positive outlook for Bitcoin (BTC) over several months, has now adopted a more reserved stance following a 8% drop in recent days. He has issued a word of caution, suggesting potential further declines in the near future.

Last week, Bitcoin, currently the most valuable cryptocurrency, experienced a 8.8% decrease, reaching close to $95,000 – its largest weekly drop since August. This information was gathered from TradingView and CoinDesk Indices. The decline occurred as the Federal Reserve hinted at fewer interest rate reductions in the upcoming year while emphasizing that it is not permitted to hold Bitcoin and has no intention of altering laws to make this possible.

1) The aggressive interest rate predictions stirred unease in conventional markets, causing a 2% decline in the S&P 500 and a 0.8% increase in the dollar index, pushing it to its highest point since October 2022. The yield on the 10-year Treasury note, often referred to as the risk-free rate, climbed 14 basis points, breaking free from a technical pattern in a positive manner.

According to Andre Dragosch, director and head of research Europe at Bitwise, a cautious or risk-averse sentiment might linger on for a while.

In essence, the Federal Reserve finds itself in a challenging situation, sandwiched between difficult choices. Despite three successive rate reductions since September, financial conditions have become increasingly restrictive. Concurrently, there’s been a noticeable increase in consumer price inflation over recent months, reaching new peaks according to indicators like truflation’s U.S. inflation gauge, as Dragosch explained to CoinDesk.

Among a small group of analysts, Dragosch accurately foresaw a significant surge in Bitcoin’s price towards the end of July when most opinions were not optimistic. Bitcoin touched lows around $50,000 approximately then and has since reached an all-time high of over $100,000 for the first time ever.

In essence, Dragosch hinted that we might encounter increased hardship in the upcoming period, but considering the persistent positive factors influencing Bitcoin (such as its supply shortage), this could potentially be a profitable buying chance.

When Treasury bond rates increase (or “harden”), it often means higher lending costs and a preference for fixed-income investments over riskier ones such as cryptocurrencies or stocks. In addition, a stronger U.S. dollar makes American dollar-based assets more expensive, which in turn reduces capital inflows.

Inflation following the 1970s model?

If you’ve been observing financial markets over an extended period, you might have noticed debates suggesting that inflation pressures in the U.S. economy resemble the ups and downs of a rollercoaster ride similar to the 1970s. In the 70s, the second surge was significantly stronger than the first one.

Dragosch points out that the persistent high inflation figures in recent times have sparked worries at the Federal Reserve about a possible resurgence, causing them to adopt a more prudent approach regarding interest rate reductions.

Dragosch stated that they appear hesitant to reduce interest rates more significantly due to concerns about a potential resurgence of 70s-style inflation, often referred to as the “double hump scenario”, and the fear of an accelerated increase in prices. If they were to lower rates aggressively, there could be a substantial rise in inflation. On the other hand, if they take little action, the economy might face difficulties.

Over time, the increasing costs due to rising interest rates and the strengthening dollar would put pressure on the Federal Reserve to respond, according to Dragosch. He underscored Bitcoin’s limited supply as a significant long-term positive aspect.

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2024-12-23 10:13