Bitcoin (BTC) last closed above $68,000 on April 11, despite trading

Bitcoin (BTC) last closed above $68,000 on April 11, despite trading above $67,000 several times over the past five days. Even though Bitcoin rose 2% on May 20, another 7% move is needed to reach its all-time high. Meanwhile, gold hit a record high of $2,450 on May 20, and the S&P 500 hit an all-time high of 5,325 points. This context has led BTC investors to think about the factors limiting its advance.

Bitcoin Anticipated US Monetary Expansion, Up 51% Since Start

Bitcoin’s 51% gain since the start of the year likely reflects investors’ expectations for monetary expansion that has recently benefited other assets. As the U.S. Federal Reserve needs to inject liquidity – either to support the ailing banking sector or to stimulate the economy – investors often turn to scarce assets for protection. This trend intensifies if the likelihood of an economic recession increases.

Wider M2 monetary base in the United States, US$1 billion. Source: Federal Reserve Bank

According to data from the US Federal Reserve, the US broad monetary base (M2), which had stagnated at $20.8 trillion since May 2023, exceeded $21 trillion in April 2024. This change marks the end of the period of contraction that began in April 2022, when the M2 index increased. It reached $22 trillion. Regardless of how interest rates move, an increase in money in circulation indicates rising inflationary pressures, even if businesses and individuals are currently hesitant to spend.

However, it would be simplistic to assume that the US government will continue to increase its liquidity if inflation remains a major public concern. For example, the U.S. Federal Reserve could choose to lower interest rates while taking steps to rein in the economy, such as increasing bank reserve requirements. This strategy could slow the expansion of the monetary base M2 in the hope of achieving a “soft landing”, which aims to avoid a recession after a period of high interest rates.

Weakness in the global real estate sector affects investor expectations

Several factors affect the price of Bitcoin, including some external to the cryptocurrency market and others related to the dynamics and momentum of Bitcoin trading. For example, on May 17, Chinese authorities announced plans to address difficulties in the region’s real estate market. This decision highlights the risks of an economic slowdown, given the fragile conditions experienced by the sector.

The People’s Bank of China (PBOC) will provide $42.2 billion to state-owned enterprises to purchase unsold apartments. Larry Hu, Macquarie’s chief China economist, reportedly told CNBC that resources provided by local governments “may be too limited to move the compass at the macro level.” He also noted that “later we may see more efforts from the central government.” Investors therefore remain skeptical about the ability of this one-off intervention by the central bank to resolve the problem.

The risk of an economic crisis linked to the real estate sector extends beyond China, as Barry Sternlicht, CEO of Starwood Capital Group, pointed out on May 15. According to Yahoo Finance, Sternlicht said that “commercial real estate is facing a balance sheet crisis” and added that “borrowers will have difficulty refinancing their debt due to rising interest rates.” He also reportedly predicted that regional and community banks in North America would likely begin to fail.

Limited Bitcoin adoption and pressure from Grayscale Holdings

From a certain point of view, the increased risk of economic recession can be seen as beneficial for Bitcoin, as this cryptocurrency was specifically designed to function as an independent financial system. However, it is important to recognize that Bitcoin is still not mainstream, particularly as a closed-loop economic system or medium of exchange. For this reason, when investors look for a hedge, they rarely view Bitcoin as a fundamental option, but rather as a risky asset.

On May 20, Grayscale CEO Michael Sonnenshein announced his resignation after a decade with the company. Grayscale manages the GBTC spot exchange-traded fund (ETF). Its parent company, Digital Currency Group (DCG), was significantly affected by the bankruptcy of cryptocurrency lending and trading company Genesis in January 2023. As a result, investors fear that part of the GBTC fund of 19, 4 billion dollars is liquidated. Which could have a negative impact on the price of Bitcoin.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research before making a decision.

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