Bitcoin Struggles to Reach New High Amidst Global Economic Uncertainties
Summary:
Despite multiple trades above $67,000 in the past week, Bitcoin last closed above $68,000 on April 11. To reach its all-time high, it needs a 7% surge. Meanwhile, gold and the S&P500 have hit record levels, prompting Bitcoin investors to question what's hampering its growth. With the broader U.S. monetary base (M2) surpassing $21 trillion in April 2024, signals of higher inflation and potential economic downturn are apparent. Efforts to stabilize the Chinese real estate sector and the risk of economic crisis beyond China cause concerns. Simultaneously, Grayscale's CEO resignation stirs worries about potential negative impacts on Bitcoin's price.
On April 11, Bitcoin scored its most recent win by closing above $68,000, despite the digital currency hanging around the $67,000 mark multiple times within the last week. To reach its historical peak, the digital asset, that experienced a 2% hike on May 20, has to surge another 7%. Meanwhile, gold's worth escalated to a never before seen $2,450 on the same day. Simultaneously, the S&P 500 index reached an unprecedented height of 5,325 points. Such developments are resulting in Bitcoin investors speculating what's stymieing the cryptocurrency's growth.
From a year-to-date perspective, Bitcoin saw a 51% context expansion as investors predicted the monetary expansion that eventually favored other assets. The Federal Reserve (Fed) of the United States often resorts to liquidity boosting, providing a lifeline to the banking industry or invigorating the economy. Investors usually gravitate towards scarce assets during such times and more when an economic recession threatens.
The Fed's data reveals an uptick in the United States' broader monetary base (M2), which has been languishing at $20.8 trillion since May 2023, as it touched the $21.0 trillion mark in April 2024. This critical moment signifies the cessation of a retraction stage that set in during April 2022 when the M2 marker hovered at $22 trillion. The surge in liquid money indicates potential inflationary pressure, though a reluctance to spend persists among entities and individuals.
Oversimplifying the situation by asserting that the U.S. government will continue injecting liquidity without factoring in inflationary concerns is a mistake. In all likelihood, while curtailing the economy, like elevating banks' reserve prerequisites, the U.S. Fed might opt for interest rate reduction. This is in hopes of fostering a "soft landing,” an economic state where a recession-provoking period of high interest rates concludes.
Beyond the cryptocurrency market, several factors are impacting Bitcoin's price, including the dynamics of Bitcoin trading and indices. Chinese authorities' announcements on May 17 about addressing their region’s distressed real estate sector provide an example. This measure highlights the potential for an economic decline due to the sector's uncertain conditions.
To accommodate unsold apartments, the People's Bank of China purports to offer $42.2 billion to state-run firms. Resources at the disposal of local administrations may fall short of delivering a macro-level impact, and more central government effort might be needed, as pointed out by Larry Hu, Macquarie's chief China economist. With this in mind, investors doubt that this single maneuver from the central bank will remedy the situation.
The potential for an economic crisis propelled by the real estate sector expands beyond China, as suggested by Starwood Capital Group's CEO Barry Sternlicht on May 15. Sternlicht identified the "balance sheet crisis" confronting commercial real estate and the ensuing difficulty borrowers might have in refinancing debt due to soaring interest rates. He further anticipated the probable collapse of North American regional and community banks.
Surprisingly, Bitcoin’s limited adoption and the pressure from Grayscale’s holding entity could play to Bitcoin’s advantage. With an impending economic recession, Bitcoin, serving as a standalone financial system, could secure more attention. However, considering Bitcoin’s current status as a secondary option rather than a primary hedge in times of financial crisis, investors may remain cautious.
The resignation of Michael Sonnenshein, Grayscale asset manager's CEO on May 20, raises further concerns. Grayscale, which manages the GBTC spot exchange-traded fund (ETF), is under the Digital Currency Group (DCG), a parent company deeply affected by the bankruptcy of its crypto trading business Genesis in January 2023. Worries have emerged about a potential liquidation of a section of the $19.4 billion GBTC fund, known to negatively affect Bitcoin's price.
Bear in mind that the details presented in this article neither provide investment advice nor recommendations. Every investment or trading step entails risks, and it is prudent for readers to conduct their own research before making any decisions.
Published At
5/20/2024 9:30:00 PM
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