Bitcoin Rises Amid Macroeconomic Data and Decreased ETF Outflows: A Glimpse into Crypto's Future
Summary:
Despite struggling to stay above $62,000, Bitcoin experienced a 4.6% increase on May 3, following fresh macroeconomic data and a decrease in outflows from U.S. spot Bitcoin exchange-traded funds. This surge coincided with the announcement of steady jobless claims, boosting investor confidence of possible interest rate cuts from the Federal Reserve. As further signs point towards potential stock market slowdown, and coupled with the $6 trillion lying idle in money market funds, even a modest allocation towards Bitcoin could further strengthen the cryptocurrency market.
Bitcoin saw a rise of 4.6% on May 3, overcoming the challenge to secure prices above $62,000. The rise came in response to fresh macroeconomic data that hinted at a relaxed monetary policy from the Federal Reserve in the U.S, along with a decrease in outflows from U.S. spot Bitcoin exchange-traded funds.
Interestingly, the majority of Bitcoin's surge on May 3 happened post 12:30 UTC, aligning with the U.S. Department of Labor's revelation that jobless claims steadied at 208,000 for the week ending on April 27. This is the lowest figure seen since mid-February, pointing to a continuation of strong employment data.
Support for these robust employment numbers came from the Employment Cost Index (a broad measure of labor costs), which rose 4.2% during Q1, compared to the year prior. This has sparked investor optimism that the Federal Reserve may slash interest rates by late 2024, a move generally favorable for risk-takers who are invested in the likes of cryptocurrencies.
Data from the CME Group’s FedWatch Tool indicates that traders now predict a 61% probability of the Fed reducing rates to under 5.00% by the meeting scheduled for Dec. 18, a rise from last week's 40% expectancy. In light of dwindling returns on fixed-income investments, traders are leaning towards seeking more profitable avenues. This increases the appeal to invest in stocks, commodities, and other alternative investments if the trend persists.
May saw the U.S. M2 money supply (encompassing cash, savings deposits, and short-term bank deposits) move into positive territory for the first time since November 2022. Historically, an increase in M2 supply triggers stronger performance of crypto markets compared to traditional financial markets, a trend evident during the bull markets of 2014, 2017, and 2021.
Though a potential capital shift from fixed-income securities may primarily profit the stock market, Bitcoin’s market capitalization presently stands at $1.2 trillion, whilst a whopping $6 trillion sits unused in money market funds. Hence, even a modest 1% allocation towards Bitcoin could mean a $60 billion cash injection into the crypto market.
To lend some perspective, net inflows since the U.S. spot exchange-traded funds' launch in January have accumulated $11.2 billion, as per data from Farside Investors. Moreover, on May 2, Robert Mitchnick (BlackRock's head of digital assets and the world's largest asset manager) reportedly claimed that sovereign wealth funds and endowments are renewing Bitcoin-related conversations.
Investors are becoming skeptical about the consistent and rapid growth of tech firms, especially in the wake of Apple's record $110 billion stock buyback program. The management team's decision to not spend the cash on establishing new product lines or extending their distribution and sales network implies a lack of foreseeing demand growth in the upcoming future.
Moreover, macroeconomic signs of potential interest rate cuts and sluggish stock market growth, coupled with a drop in U.S. spot Bitcoin exchange-traded fund outflows, might have given investors the required confidence to invest. On May 2, Grayscale GBTC was the only fund to witness net outflows, contrasting with the prior day when $564 million was pulled from such funds, including those overseen by BlackRock, Fidelity, and ARK 21 Shares.
Historical patterns highlight that fears, uncertainties, and doubts (commonly labeled as FUD), such as the miners' death spiral or the pressure to offload Bitcoin post-halving, can quickly temper buyer's enthusiasm. Through time, investors understanding that the network's difficulty adjustment spontaneously recalibrates itself and that the remaining miners gain from any potential reduction in hash rate, often leads to buyers bouncing back and a swift recovery in price.
Though there's no guarantee that Bitcoin's rally on May 3 will hold, there are several factors playing into the recent boost in investor confidence. However, it is crucial for readers to conduct their own research and calculate associated risks before making any investment or trading decisions.
Published At
5/3/2024 9:44:28 PM
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