(Kitco News) – Bitcoin (BTC), cryptos, and the broader financial markets were all under pressure in early trading on Friday, which some analysts are calling profit-taking after asset prices bounced back from last week’s yen-driven pullback during earlier trading sessions.
The one exception to Friday’s weakness is spot gold, which spiked to a new record high of $2,500.31 shortly after the U.S. markets opened.
Alert on Gold.
In all markets, the Friday close is the most significant price of the week.
Gold is poised to post its fourth consecutive all-time Friday high
Might the trend be considered as UP?? $GLD $GC_F pic.twitter.com/S0SpXYxtY6— Peter Brandt (@PeterLBrandt) August 16, 2024
The quick turnaround for asset prices was helped along by positive data releases, including strong retail sales numbers and another drop in weekly jobless claims.
“Add these to the positive inflation numbers earlier in the week and it gave investors all the excuse they needed to rush back into the market,” said David Morrison, Senior Market Analyst at Trade Nation. “The data is just what the Federal Reserve needs to justify a rate cut next month.”
“Inflation continues to drift back towards its 2% target, while the labor market enjoys a ‘Goldilocks’ situation,” he added. “The Unemployment Rate has ticked higher, taking some of the tightness out of the sector, but not by enough to scare the horses by raising fears of an imminent recession. This also means that the market has gone back to pricing in a 25 basis point cut in September, rather than the panicky 50 basis points forecast earlier this month.”
“Yesterday also saw a big move across US Treasuries,” Morrison noted. “Yields soared as investors dumped bonds and put the money back to work in equities. This indicates a strong recovery in risk appetite with sentiment towards stocks turning positive once again.”
“But it also should be a little bit of a warning sign that this sharp turnaround could be a tad overdone,” he warned. “Nothing goes up in a straight line forever. Yet the NASDAQ 100 and S&P 500 have now gained 13% and 9% respectively from their lows on 5th August. Those gains may be enough to entice early buyers to book some decent profits.”
While stocks have seen nice rallies and now face profit-taking, cryptos have continued to struggle, with Bitcoin hitting a low of $56,122 overnight amid persistent fears that the U.S. government is preparing to dump 10k BTC on the open market.
BTC/USD Chart by TradingView
“The positive sentiment in stock markets has yet to spill over into cryptocurrencies due to selling pressure,” said Alex Kuptsikevich, senior market analyst at FxPro. “The Crypto Fear and Greed Index dropped two points to 27 (fear). Thursday’s active recovery in stocks was met with Bitcoin and Ethereum sales, which at their lowest point on Thursday approached $56K and $2500, respectively, following reports of new Bitcoin sales from U.S. government wallets. Friday started positively, with the prices of these cryptocurrencies rising by more than 2.5% since the beginning of the day.”
“Despite the early-day growth, the technical picture for Bitcoin remains bearish, with higher chances of further price decline,” he noted. “A significant fundamental factor remains the sales from U.S. government wallets. Besides the natural effect of increased supply in large blocks, the psychological effect must be considered, causing buyers to wait for the end of the sell-off or speculate about the risks of regulatory tightening.”
At the time of writing, BTC trades at $58,041, a decrease of 2.8% on the 24-hour chart.
Recession fears weigh on cryptos
“This week, markets remained range-bound as mixed economic data continues to shake investor sentiment,” said analysts at Ryze Labs. “On Tuesday, the Producer Price Index (PPI) missed expectations, leading to a shift in forecasts toward 50 basis points of rate cuts and sparking a brief rally.”
“However, Wednesday's Consumer Price Index (CPI) revealed that inflation dropped to 2.9%, marking the first time in 40 months that headline inflation has fallen below 3%,” they said. “Despite this, the market response was muted, as this decline was largely anticipated. Concerns are growing that inflation's drop may signal stalling growth and a weakening economy, fueling recession fears.”
“Market participants remain divided on whether the recent yen carry trade unwind is a one-off volatility shock or a sign of a larger unwinding to come,” the analyst noted. “While a 25 bps rate increase reduces the attractiveness of the carry trade, the rate differential persists, suggesting that asset managers may continue to borrow in JPY while hedging out exchange rate risk.”
They also highlighted “an increasing market tolerance for external supply influxes.”
“This week alone, we saw several significant moves: 10,000 BTC from Silk Road wallets controlled by the U.S. government, 789.5K ETH from Plustoken wallets, $2 billion of Mt. Gox BTC from BitGo wallets, and $150 million of ETH from Jump Trading wallets,” they said.
“On a more optimistic note, global liquidity levels are rising, supported by increasing collateral values in July,” they noted.
“U.S. net liquidity, previously constrained by April's tax season, is now improving, with the Treasury General Account (TGA) sitting at a cyclical high of $750 billion,” the Ryze analysts concluded. “With clean positioning following last week's risk-off event, low leverage is limiting downside volatility, while rising liquidity bodes well for the markets.”
