(Kitco News) – Cryptocurrency prices declined in early trading on Monday as market watchers focused their attention on this week’s Jackson Hole summit and Friday’s speech from Federal Reserve Chair Jerome Powell, where he is expected to provide clues as to when, and how much, the Fed plans to cut interest rates in 2024.
“On Monday morning, the crypto market capitalization stood at $2.07 trillion, up slightly from $2.05 trillion a week earlier,” noted Alex Kuptsikevich, senior market analyst at FxPro. “In the previous two weeks, the market failed to rally above the $2.15 trillion level, which has become a local resistance.”
“The weakness in the crypto market undermines our confidence in a global recovery in risk appetite, even though last week was the strongest week for US equity indices in many months,” he added.
“Interestingly, the sell-off from local resistance in the crypto market over the past two weeks has been accompanied by a surge in stablecoin capitalization to new records after a prolonged sideways period from April to the end of July,” Kuptsikevich said. “Typically, the growth in stablecoin volume coincides with the bullish phase of the market. The crypto whales buy on dips, and it is clear from Bitcoin's (BTC) dominant dynamics that their focus remains on the first cryptocurrency, whose market share has risen to 56.5% - the highest since April 2021.”
After spiking above $59,600 late on Friday and briefly climbing above $60,000 on Sunday afternoon, Bitcoin sold off as Monday approached, hitting a low of $57,818 ahead of the market open before climbing back above $58,200.
BTC/USD Chart by TradingView
Despite the choppy price action seen over the past couple of weeks, analysts agree that Bitcoin has shown some stability over the past six months as it traded between $58,000 and $70,000.
“By its own standards of high volatility, it has been a relatively stable six months for Bitcoin, with the world’s most valuable cryptocurrency unable to consistently smash through the $70,000 ceiling while being well supported at $50,000,” said Neil Roarty, analyst at Stocklytics.
“What will it take to break Bitcoin’s half-year holding pattern? The most likely factor will be a decisive outcome in November’s US election,” he suggested. “Donald Trump has been vocal in his support of cryptocurrencies, and should he return to the White House, the threat of increased regulatory oversight for the sector should diminish. That could unleash an unprecedented bull run.”
“The greater uncertainty is with a Kamala Harris victory,” Roarty added. “She’s now narrowly favored to win the presidency, according to traders on prediction markets, but has given few indicators on how she would approach cryptocurrencies. Until we know the name of the next US president, it looks like Bitcoin bulls and bears will need to play the waiting game.”
“Despite the notable volatility and activity observed so far in August, this marks the second consecutive week where BTC's price has remained relatively stable,” said Matteo Greco, Research Analyst at Fineqia International.
“The neutral price movement was mirrored by a neutral flow into BTC Spot ETFs, which saw a cumulative net inflow of $32 million last week, in line with the stable price of the underlying asset,” he added. “Notably, trading activity has been unexpectedly robust in recent weeks despite August typically being a month of lower trading volumes. Last week, BTC Spot ETFs recorded about $7 billion in cumulative trading volume, averaging $1.4 billion in daily trades.”
Greco noted that the uptick in trading volume “follows two weeks of heightened activity, with $10.7 billion and $12.5 billion in trading volume, respectively. Since the start of August, BTC Spot ETFs have already surpassed $30 billion in trading volume, marking a significant increase in investor interest and activity, levels not seen since April. This contrasts with the usual quieter trading periods in Q3, especially in July and August.”
While Bitcoin spot ETFs have seen rising demand, Ethereum (ETH) spot ETFs “experienced approximately $14 million in outflows last week, continuing the trend of relatively neutral flows,” he said. “Total outflows since inception now stand at around $420 million. However, it’s worth noting the recent reduction in outflows from the Grayscale Ethereum ETF (ETHE) over the past couple of weeks.”
“If market momentum turns positive again, with rising prices and sustained demand, the expected decline in outflows from ETHE could lead to increased net inflows, similar to the trend observed with BTC Spot ETFs during Q1,” Greco said. “This could finally bring additional capital into the digital assets market.”
“On the macroeconomic front, market participants are anticipating significant interest rate cuts from the Federal Reserve (FED),” he noted. “Last week, rumors circulated about a potential 50 basis points (bps) cut at the next Federal Open Market Committee (FOMC) meeting in September. However, expectations have since shifted towards a 25bps cut in September, followed by two additional 25bps cuts in November and December.”
“This adjustment is due to less negative economic data than initially expected, which has eased concerns about an emergency 50bps cut, a move that could have been interpreted as a sign of panic by market participants and potentially caused turbulence in risk-on assets,” Greco said.
“If the FED implements three additional 25bps cuts by the end of the year, it will amount to a total 75bps reduction in 2024, below the 100bps cut early-year expectation,” he concluded. “Although inflation remained higher than expected during Q1 and Q2, slowing the pace of rate cuts, recent data on inflation and the labor market suggest a more expansionary monetary policy is expected for Q4.”
At the time of writing, Bitcoin trades at $58,560, a decrease of 2.10% on the 24-hour chart.
