Last week, US Federal Reserve Chairman Jerome Powell indicated that “now is the time” to ease monetary policy, as interest rate cuts, unless confirmed, loom on the horizon. in September.
“The direction forward is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell told attendees at the Jackson Hole symposium, hosted by by the Federal Reserve Bank of Kansas City. during the weekend.
Following the president’s conciliatory remarks, bitcoin recovered from US$60,600 on Friday August 23 to over US$64,000 on Sunday.
Crypto ETFs were also among the best-performing assets ahead of the announcement, according to Global X data.
Namely, during the week ending August 23, the DigitalX Bitcoin ETF (BTXX), Monochrome Bitcoin ETF (IBTC), and Global X 21Shares Bitcoin ETF (EBTC) all posted one-week returns between 3 and 4%.
The VanEck Bitcoin ETF (VBTC), meanwhile, returned 4.5% for the week and the Betashares Crypto Innovators ETF (CRYP) returned an impressive 6.1%.
Explaining the move, Marc Jocum, investment strategist at Global X, noted that investors wanted to see a change in the Fed’s rhetoric, which Powell delivered.
“This is simply due to the academic arithmetic that lower interest rates or a lower discount rate, when you calculate the long-term value of an asset, contribute to their prices increasing overall.”
Jocum added that Powell’s comments injected an “animal spirit” into the market.
“When you have these animal spirits, cryptocurrencies are really on the far right of the spectrum when it comes to risk. So it bodes well that these prices may increase over time,” he said.
He noted that Powell’s comments came at an opportune time for crypto markets, as the asset class has celebrated several victories in recent weeks.
“Demand for ETFs continues to skyrocket. In the United States, since the beginning of the year, more than $18 billion has been invested in US Bitcoin ETFs,” he said.
“Locally, we have seen over $100 million come in [bitcoin] ETFs this year, last month alone, were $30 million.
“Then you also have an election cycle, and you’ve seen people like Donald Trump, who is very supportive of cryptocurrency in terms of mainstream adoption and more accessibility.”
Highlighting ETFs as a strong point of crypto exposure, Jocum pointed out that Morgan Stanley recently expanded its platform in the United States to include Bitcoin ETFs, which could further fuel market momentum.
“So there are a lot of tailwinds.”
Bitcoin declines
Despite these tailwinds, the price of bitcoin lost its weekend gains within days, falling below $60,000 on Tuesday.
While the cause of these moves is not always clear, Jocum suggested that liquidations in the futures market, particularly those in adjacent cryptocurrencies like Ethereum, could have played a role.
“We can also fear an oversupply, given the measures taken by the American government. [bitcoin] hold on,” he said.
Last month, Trump revealed he planned to make the United States the “crypto capital of the world” by maintaining a “strategic national stockpile of bitcoins” on home soil, with the presidential candidate saying he would ” would never sell” more than 200,000 bitcoins from the country. Bitcoin amassed through asset seizure through law enforcement actions.
“Any time there is an oversupply in the market, giving us a scarce asset, that can impact prices,” Jocum said.
But the recent price drop could also just be a sign of the season, Jocum added, noting that August is typically a “quiet month” for crypto.
“Even though we’ve seen a slight decline in cryptocurrency prices, I mean, bitcoin is still up 30 to 40 percent year to date and over 100 percent in the last 12 months ” he said.
