Bitwise's head of European research has been accurately bullish on Bitcoin (BTC) in recent months, but he has turned cautious after last week's 8% drop, predicting further losses in the coming weeks. I warned you.
Bitcoin, the top cryptocurrency by market capitalization, fell 8.8% last week to nearly $95,000, its biggest decline since August, according to data sources TradingView and CoinDesk Indices. The losses came as the Federal Reserve signaled that it would reduce interest rate cuts next year, emphasizing that it would ban BTC holdings and not seek legal changes to do so.
The so-called hawkish interest rate outlook also disrupted traditional market sentiment, leading to a 2% decline in the S&P 500 index and a 0.8% rise in the dollar index, which rose to its highest level since October 2022. The so-called risk-free interest rate on US Treasuries rose 14 basis points, breaking out of a bullish technical pattern.
The risk-off mood could persist for some time, said Andre Dragos, director and head of European research at Bitwise.
“Despite three consecutive interest rate cuts since September, financial conditions continue to tighten, and the larger macro picture is that the Fed is caught in the middle.On the other hand, real-time measurement of consumer prices Judging by Torflation's U.S. inflation measure, it will be several months before it reaches new highs,” Dragosh told CoinDesk.
Dragosh was one of the few observers to accurately predict the massive rally in BTC prices in late July, when market conditions were far from bullish. BTC hit a low of nearly $50,000 around that time and recently topped $100,000 for the first time on record.
“Therefore, it is very likely that we will see further pain in the coming weeks, but this could be an interesting buying opportunity given the continued tailwinds from BTC’s short supply,” Dragosh said. added.
Hardening Treasury yields, which represent rising borrowing costs and the relative attractiveness of bond investments, typically lead to outflows from riskier assets such as cryptocurrencies and stocks. A strong dollar also makes US dollar-based assets more expensive and impedes capital inflows.
Inflation following the 1970s model?
If you've been following financial markets for a while, you've probably encountered the argument that price pressures in the U.S. economy are on the same inflationary roller coaster as they were in the 1970s. At that time, the second wave was more intense than the first.
Dragosh said the weak CPI inflation rate in recent months has raised concerns about a possible second wave at the Fed, leading to a more cautious stance on rate cuts.
The Fed fears this scenario, so Chairman Powell will likely act too little, too late…
Expect more pain in the coming weeks. pic.twitter.com/pi9dsMIUMU
— Dr. Andre Dragosch |Bitcoin and Macro⚡ (@Andre_Dragosch) December 20, 2024
“They are probably reluctant to cut rates more aggressively because they fear a double hump scenario and a return to the 70s twin peaks of inflation,” Dragosh said. “An aggressive rate cut risks significantly accelerating inflation, while a smaller rate cut could hurt the economy.”
But ultimately, monetary tightening due to rising yields and the dollar index will force the Fed to take action, Dragosh added, stressing that Bitcoin's lack of supply is a key bullish factor in the long run. did.
