Bitcoin struggles to match global market recovery trends

After a periodic scare, the global markets have adopted an upward momentum, showcasing signs of recovery from previous lows. However, while other markets (equity for example) show resilience based on the expectation of a Federal rate cut, the crypto market is yet to register a prolonged upward boom. The largest component of the crypto market, Bitcoin registered a loss of momentum in August (9%), however since the Fed Chair introduced groundworks towards rate cuts in September, it has registered a 5% upward move. At the time of writing this article, Bitcoin is trading at $64,070 (August 25, 12:03 PM IST) with further prediction of an upward move. As the US Federal Reserve looks to introduce new stimulative measures, chances are that the Bulls will set aside the consolidation period and continue their momentum.

While the fundamentalists believe Bitcoin’s bullish momentum has halted, charts and oscillators paint a different story. For example, the Stochastic oscillator suggests that BTC’s rating has reached 82 on a 0-100 scale — in the overbought zone. This notion is further bolstered if we look at BTC’s momentum data since April 2024, when the halving event took place. Following April’s halving event, BTC has failed to replicate its previous post-halving performance and has registered significant downturns. These downturns have resulted in significant retail participation to buy in the dip, leading to the overbought zone, weakened upward momentum and profit booking. This does not mean that the latest 5% move can be classified as a news-driven periodic upward momentum, as it is yet not clear that if Bitcoin can sustain it.

Furthermore, despite increased bulls and whale participation, Bitcoin has failed to sustain its presence over $70,000 since April. Coupled with this, the MACD histogram and the Ichimoku cloud suggest that more dynamic times may beckon the world’s largest cryptocurrency and may lead to a sale-off in the immediate future.

Aligning with global market recovery trends

While crypto enthusiasts and retail traders believe Bitcoin will soon align itself with the global market recovery trends, experts suggest that it is a long shot. At best, investors are open to bullish momentum for the medium term, a sentiment driven by burgeoning calls for regulations around the world and a Federal rate cut in mid-September. They also believe that the immediate nature of Bitcoin opens up a gap with the traditional markets, with no means to bridge the same. However, if reports are to be believed of a .50% rate cut in September, it will act as a critical enabler of the overall cryptocurrency markets, including Bitcoin to resume an upward momentum based on its aggressiveness. This is primarily because of the reduction of brokerages and other costs associated with fixed-income investments, also as an indication that financial quantitative tightening is behind us.

Compared to the global markets, it can be noted that the S&P 500 is looming around its all-time high levels. In contrast, BTC has witnessed a 16% downward trend since June which has contributed to its risk appetite. Even if we factor in the latest upward move following the Fed Chair’s speech and the subsequent upmove, Bitcoin has had a sideways market since mid-July.Similarly, investors in traditional markets like gold and equity as a cushion, driven by dividends and buying on dips, but cryptocurrencies are yet to offer any similar remuneration for incentivizing investor aspirations.

Another aspect behind Bitcoin’s fall in recent months is its struggle to become a mainstream financial asset with a multi-pronged approach in domains. In simpler words, cryptocurrencies including Bitcoin cannot be used to complete conventional transactions which has had an adverse effect on its adoption among retail investors. Bitcoin ETFs and ETNs have a total AUM (asset under management) of approximately $66 billion, in comparison, worldwide Gold ETFs have an overall AUM of $246 billion — a fact that highlights Bitcoin has a long way to go to match conventional financial tools.

Challenge or opportunity?

Bitcoin’s inability to align with global market sentiments should not be perceived in a black-and-white manner. Investors need to understand that diverse aspects make it a unique financial tool that does not always align with macroeconomic trends. Despite the recent setbacks, Bitcoin and the rest of the cryptocurrency domain remain a productive financial asset to park wealth for the long term. For short-term traders, as the US Presidential election approaches in November, all nominees have shared a favourable view of the future of Bitcoin and other crypto assets. This will also help reassure doubtful investors regarding the US government’s fiscal debt, particularly those who are looking to book profits to safeguard their financial interests. Furthermore, the fresh influx of spot Bitcoin ETFs will allow Bitcoin to carve a new path forward sooner rather than later, highlighting the increasing interest in BTC and related financial instruments irrespective of the present challenges.(The article is attributed to Roshan Aslam, Founder & CEO of GoSats.)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)