NEW YORK – It’s been a good month for bitcoin, which we haven’t said in a long time.
After months of decline, it increased by more than 17% in July, its best performance since October. Ether increased by 57 percent in one month, its largest monthly gain since January 2021.
The rally coincided with gains in riskier assets such as stocks, as investors bet that economic weakness would deter the Fed from tightening monetary policy aggressively.
The 40-day correlation of Bitcoin to the tech-focused Nasdaq (.IXIC) is now 0.90, up from 0.41 in January, where 1 means their prices move in perfect lockstep.
Since late November, the leading cryptocurrency has been consistently positively correlated with the Nasdaq, in contrast to previous years when it would routinely turn negative, implying they moved in opposite directions.
The convergence in July was described as “good news” by Itai Avneri, deputy CEO of cryptocurrency trading platform INX.
“It means institutional investors are looking at bitcoin like any other asset,” he said. “When the market turns – and it will turn – these institutions will come back and invest in crypto.”
Gains were not limited to bitcoin, as the value of the global cryptocurrency market crept back above $1.15 trillion last month, adding over $255 billion since the end of June, CoinGecko data showed.
Assets under management in digital asset investment products rose 16.9% to $25.9 billion in July, reversing June’s decline of 36.8%, according to research firm CryptoCompare.
However, trading has been thin – indicating plenty of investors gauge it’s too early to turn bullish in a deeply uncertain macro backdrop with inflation rampant, and America and Europe staring down the barrel of a recession, not to mention the implosion of some big crypto players.
Average daily volumes across all digital asset investment products fell by 44.6% to $122 million, the lowest since September 2020, CryptoCompare found.
“On a medium-term horizon, we’re bearish (on crypto) despite the current bounce, this aligns with our stance on equities,” researchers at MacroHive wrote on Friday, citing inflation, recession risks and rate hikes.
It’s A Long Way To $60,000
Bitcoin is currently trading at $23,336, consolidating around the $24,000 mark after touching that level last week.
It will likely continue to trade in a tight range of around $20,000, plus or minus 10% to 15%, until there is more clarity over the economy’s trajectory, according to Chris Terry, vice-president at lending platform SmartFi.
“We could be in this stalled market for weeks and weeks.”
On the flip side, if the United States enters a prolonged recessionary period and the Fed is forced to cut interest rates, bitcoin could benefit, said Russell Starr, CEO of Valour, which creates exchange-traded products for digital assets.
“You’re going to have to see another quarter of recession before you see a resumption back up to the lofty $60,000 levels,” he said.
For investors who dove into crypto during its surge at the height of pandemic-era easy monetary policy, the next several months could be quite bumpy, according to Adrian Kenny, senior sales trader at GlobalBlock.
“There is still an undoubtedly considerable mountain to climb in terms of ‘normality’ or the hopes of a return to the highs of 2021 anytime soon.” – Reuters
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