(Kitco News) – Bitcoin’s (BTC) price action on Friday morning was more of the same – choppy – after the July Personal Consumption Expenditures (PCE) index fell in line with expectations, with ‘core’ inflation rising 0.2% month-on-month. The year-over-year change was 2.6%, matching June’s level and below the forecasted 2.7%.
With July PCE falling in line with Wall Street forecasts, market watchers are now certain that an interest rate cut will come in September, and the focus is now on how big the first cut will be and how many cuts there will be before the end of 2024.
“Last Friday, Fed Chair Jerome Powell delivered a notably dovish speech at Jackson Hole, stating that ‘the time has come for policy to adjust,’” said analysts at Ryze Labs. “This marks a significant shift in the Fed's focus from combating inflation to addressing the risk of rising unemployment. Consequently, the market is now expecting the Fed to be proactive, pricing in over 100 basis points of rate cuts across the next three meetings, with an additional 100 basis points anticipated for 2025.”
“With Powell and the Fed signaling the start of a rate-cutting cycle, we anticipate increased global liquidity will eventually lift risk assets,” they added. “There are early signs of this: the People's Bank of China (PBoC) injected a substantial RMB 1,042 billion (US$150 billion) into Chinese money markets this week, boosting liquidity in global manufacturing, industrial sectors, and commodity markets. Additionally, U.S. Treasury Secretary Janet Yellen has $740 billion remaining in the Treasury General Account that could be deployed.”
Despite expectations for a rate cut, which is expected to boost risk assets, Bitcoin and the broader crypto market continued to see bearish pressure on Friday, and look like they will end the month at or below where they started.
BTC/USD Chart by TradingView
“The cryptocurrency market failed to move significantly from the previous day's levels, losing 0.5% to $2.07 trillion,” said Alex Kuptsikevich, senior market analyst at FxPro. “Crypto followed the stock market but was noticeably weaker. Smooth growth during the day was wiped out by a late sell-off, taking capitalization back to the local lows of recent days. Sentiment in the crypto market remains in the fear zone, with the index at 34 (+5 for the day).”
“Bitcoin approached $61K on Thursday, buoyed by hopes that the equity market would be able to digest the fall in Nvidia shares,” he noted. “However, a sell-off in the second half of the session showed that the bears were in control and the breakout was false. In early trading on Friday, BTC rolled back to $58.8K, an area of lows since August 28th.”
“The technical picture didn't change much during the day: the ability to consolidate above $60K will open the way for sustained buying, while a sustained dip below $59K will accelerate selling,” he concluded. “There could be many false signals between these levels.”
As for why cryptos are struggling despite high expectations for a rate cut, Matthew Graham, Managing Partner at Ryze Labs, pointed squarely at the actions by regulators.
“After macroeconomic factors, regulatory concerns continue to top the list of factors influencing and, in most cases, weighing on crypto prices, as we saw this week with regulatory action in both the U.S. and France,” he said, referring to the arrest of Telegram CEO Pavel Durov in France.
According to Innokenty Isers, founder of Paybis, the initiation of rate cuts by the Fed could help Bitcoin overcome its history of sluggish performance in September.
“September is a historically negative month for Bitcoin, as data shows it has an average value depletion rate of 6.56%,” he said in a note to Kitco Crypto. “Thus far this month, the investor sentiment around Bitcoin has been negative as the coin has traded between $49,000 and $66,000. The coin has maintained an average price of $58,000 this past week with the US Feds’ update on the potential rate cut.”
“While Chairman Jerome Powell noted that this monetary move depends on sustained improvement in key data releases like CPI, PCE, and jobs data, the market has maintained a cautious approach to what is to come, with BTC caught in the crosshairs,” Isers noted. “Should the Feds cut the interest rate in September, it might help Bitcoin re-write its negative history.”
“This is because rate cuts generally lead to excessive US Dollar flow in the economy,” he explained. “This reduces the Dollar's purchasing power, further strengthening the outlook of Bitcoin as a store of value. Many institutional investors are already proving this point with massive Bitcoin accumulations. If the Fed's policies weaken the dollar, switching to risk assets with higher growth potential might be inevitable.”
“Overall, the macroeconomic indices, spot Bitcoin ETF adoption, and favorable hashrate might make September a relatively better month for BTC this quarter,” Isers concluded.
At the time of writing, Bitcoin trades at $58,500, a decrease of 4% on the 24-hour chart.
