Bitcoin's Resilience Amid Market Challenges and Rising Crypto Favorability in Washington
Summary:
The article discusses Bitcoin's (BTC) resilience amid testing market times. It highlights Washington's growing favorability towards cryptocurrencies following Congress' passage of the first standalone crypto regulation. Additionally, it underscores the role of banks who, driven by economic incentives, are likely to offer custody services for cryptocurrencies. The article also mentions the pressures faced by the U.S. Federal Reserve to decrease interest rates to fend off recession, as inflation stays stubbornly high. Despite Bitcoin's price slump, BTC derivatives have been resilient, suggesting that the $65,000 support level may become more robust.
Even though Bitcoin (BTC) dipped to the $65,000 support level on June 14, its closure has stayed above $66,000 since May 17. Despite BTC's failure to breach the $72,000 resistance ceiling over the past four weeks, regulatory sentiment has been positively impacted by certain developments, spotlighting the limited space the U.S. central bank has to operate without triggering inflation. The strength in Bitcoin derivatives indicators and favorable market conditions suggest that a significant dip is unlikely.
Washington is gradually showing a more accommodative stance towards cryptocurrencies. The U.S. lawmakers on May 16 passed a Congressional Review Act to scrutinize an SEC rule that mandates listed firms, including banks, to list crypto assets as assets and liabilities on their balance sheets. Senator Cynthia Lummis said this vote marks as the first standalone crypto legislation ratified by Congress. Though President Joe Biden later vetoed the resolution, support from Democrats indicates the increasing prevalence and influence of crypto participants in U.S. politics, as stated by Bitcoin Policy Institute fellow, Craig Warmke. To override Biden's veto, a two-third majority is needed in both chambers of Congress.
Banks have a financial incentive to offer custodial services for cryptocurrencies as they aim to benefit from the ongoing adoption of cryptos. Flexa's Chief Compliance Officer, Daniel McCabe, suggests that the banking industry and pro-crypto lobbying could exert significant influence. Founder and CEO of the Digital Chamber, Perianne Boring, regards the support from Democrats as a monumental moment for the Biden administration, with Schumer’s backing swinging the tide in cryptos' favor. Biden must decide whether vetoing H.J.Res. 109 is worthwhile, considering it may incite conflicts within his party.
The U.S. Federal Reserve is under increasing pressure to cut interest rates to stave off an economic recession. Inflation continues to stubbornly overshoot the Fed's 2% goal, with CPI at 3.4%. This ongoing inflation, coupled with a slight increase in unemployment from 3.9% to 4% in May, signifies the job market is beginning to slacken.
Investor fear over future economic growth was reflected in the fall in the U.S. 2-year Treasury yield to a 70-day low of 4.69% on June 14. Meanwhile, the S&P 500 reached an unprecedented high on June 13, as investors gravitated towards equities and other limited assets to counteract depreciation by inflation and poor returns on bonds.
The Fed's careful approach to monetary policy is manifest in its recent decision to reduce the speed of its quantitative tightening program, indicating cautious hope that inflation is under control. However, unless the Fed adjusts its policy soon, it risks worsening economic slowdowns, as high lending costs discourage consumer expenditure and corporative investment.
Even with an 8% slump in price between June 6-14, Bitcoin's main derivatives metrics remained unaffected, demonstrating remarkable resilience. The Bitcoin futures premium displays the discrepancy between spot prices on regular exchanges and the monthly contracts in derivatives markets. A typical annualized premium of 5-10% is anticipated to compensate for the prolonged settlement period.
As of June 14, the premium for the Bitcoin 2-month futures remained above the 10% bullish market threshold. While the Bitcoin derivatives market appeared less enthusiastic than the previous week, there were no signs of strain or overwhelming demand for short sell leverage. Given the current regulatory and economic landscape, it's likely the $65,000 support level will strengthen further.
Disclosure: This article is for informational purposes only, and should not be understood as legal or investment advice. The views and opinions herein are solely those of the writer and may not reflect Cointelegraph's standpoint.
Published At
6/14/2024 10:23:18 PM
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