(Kitco News) – Markets recorded slight gains to start the work week as traders continued to digest last week’s 50 basis point interest rate cut from the Federal Reserve, which surprised many and led to a spike in asset prices from stocks to cryptos and precious metals.
Market watchers are now closely monitoring the upcoming lineup of Fed speakers, Thursday's second-quarter GDP print, and Friday’s reading on the PCE index – the Fed's preferred inflation gauge – to get a better sense of the potential size of a rate cut in November.
The CME FedWatch Tool shows the likelihood of a 25 bps cut stands at 51%, while Wall Street puts the odds of another 50 bps cut at 49%. Some analysts have said that colling inflation, not a rising risk of recession, will be the impetus for policymakers to approve another 0.5% cut.
While asset prices recorded gains on Monday, volatility continued to persist, with stocks, gold, and cryptos finishing the day lower than their intraday highs as traders remain uncertain about the best course of action amid various headwinds.
At the closing bell, the S&P, Dow, and Nasdaq all finished in the green, up 0.28%, 0.15%, and 0.14%, respectively. At the time of writing, spot gold trades at $2,625.60/oz, an increase of 0.16% on the session.
Data provided by TradingView shows that after hovering around support at $63,000 over the weekend, Bitcoin (BTC) bulls attempted to push above resistance at $64,000 on Monday morning but ran out of steam after a surge to $64,760 – its highest price in nearly a month – at which point bears smacked King Crypto back down to $63,500.
BTC/USD Chart by TradingView
“I believe the price action around Bitcoin, especially reaching towards one-month highs, suggests a market reacting positively to macroeconomic news, like the Federal Reserve's rate cut decisions,” said Brian Dixon, CEO of OTC Capital, in a note shared with Kitco Crypto. “This could be interpreted as investors moving capital into Bitcoin as a hedge against potential inflation or devaluation of traditional currencies, especially in light of significant monetary policy shifts.”
At the time of writing, Bitcoin trades at $63,285, an increase of 0.13% on the 24-hour chart.
Improving outlook
“Last week, cryptoassets outperformed traditional assets by a wide margin due to improving risk appetite,” wrote André Dragosch, head of research at ETC Group. “Risk appetite was buoyed by many developments, such as the increasing corporate treasury adoption of Bitcoin and the approval of US spot Bitcoin ETF options by the SEC.
On the adoption front, Dragosch highlighted that MicroStrategy “bought an additional 7,420 BTC (~458.2 mn USD) last week, which is following purchases of 18,300 BTC the week before.”
“In addition, MSTR has announced 2 offerings of convertible senior notes with a notional value of almost 2 bn USD which implies that MSTR could continue buying even more bitcoins over the coming weeks,” he added. “Besides, another company called Cathera Bitcoin Inc. has adopted a Bitcoin treasury strategy with the primary goal of accumulating Bitcoin on behalf of shareholders, according to their press release.”
“55 publicly traded worldwide have already announced Bitcoin holdings according to the latest data provided by bitcointreasuries.net,” Dragosch said. “Another important development last week was the approval of options on Bitcoin ETFs by the SEC. Although only options on BlackRock's iShares Bitcoin Trust ETF (IBIT) have been approved so far, other option approvals on different Bitcoin ETFs will most likely follow over the coming weeks.”
“At the time of writing, around 323k BTC (~18.5 bn USD) in bitcoin are already tied into BTC option contracts across different option exchanges such as Deribit or CME,” he noted.
“Options give investors the right to either buy or sell the underlying asset at a predetermined price in the future,” Dragosch explained. “ETF options mean that long investors can hedge their positions via protective puts but also do more sophisticated investment strategies such as covered call writing by being long the underlying ETF and shorting/writing the ETF call, thereby additionally earning the options premium.”
He said that it is “generally expected that this approval could have a very positive self-reinforcing effect on the price of Bitcoin due to a phenomenon called ‘gamma squeeze.’”
“The gamma of options is a metric that measures how much an option's price moves in response to changes in the underlying asset's price for each 1 USD change in the underlying asset's price,” he noted. “Market makers, who are required to maintain a net market-neutral exposure, wind themselves on the other side of the trade, holding substantial quantities of short call positions, also known as short gamma exposure, when investors purchase a lot of call options in anticipation of a price rally. Because they have a duty to supply the underlying asset to the buyer of the call option, they buy the underlying asset when the market rises.”
“The spot price is pressured upward by the hedging activity, leading to a strong surge similar to the one that occurred in the shares of the US video game retailer GameStop in 2021,” Dragosch noted. “This dynamic could be exacerbated by the fact that Bitcoin is significantly more supply-constrained than traditional company shares.”
Despite the tailwinds helping to push Bitcoin higher, analysts at Bitfinex urged caution as BTC now looks overbought and could spend time consolidating.
“We advocate taking a cautionary approach after the 22 percent rally we have seen in BTC,” the analysts said in the Bitfinex Alpha report released on Monday. “It is now entirely possible that the price could form a new range near current prices and consolidate for a period, as we have seen following similar previous price rallies which have been initially prompted by spot buying, but then is followed by perpetual and futures markets activity.”
“Another cause for caution is that spot market buying has slowed,” they added. “This is evident in the Figure below where we can see the spot cumulative volume delta indicator flattening out once the price moved past $63,500.”
“We believe that after the sharp moves up we have seen, especially for altcoins, the market is most likely to form a new lower timeframe range or a partial correction,” they warned.
The one counter-argument to this outlook “is the renewed interest in Spot Bitcoin ETFs after a long streak of outflows was recorded from August 24th to September 6th,” they noted. “Last week, we saw $397.2 million in net inflows across all ETF providers.”
“A scenario where we would not get a lower time frame pullback would be if the S&P500 continues to rally beyond all-time highs and BTC follows,” the analysts said. “Typically, risk appetite for BTC from traditional finance has been manifested in the form of spot ETF inflows, and this has contributed to a greater correlation between BTC and the SPX.”
“If the altcoin index and BTC price continue to breach past the resistance levels from late August and sustain these levels, this could suggest that our current move up could continue towards new highs for BTC, right as summer weakness and illiquidity comes to an end,” they concluded.
Altcoin rally gains steam
It was a positive start to the week for altcoins as all but two dozen tokens in the top 200 recorded gains.
Daily cryptocurrency market performance. Source: Coin360
Arkham (ARKM) led the field with an increase of 26%, followed by gains of 20.2% for Altlayer (ALT) and 18.1% for Bittensor (TAO). Saga (SAGA) was the biggest loser, falling 8.6%, while MX Token (MX) lost 3.7%, and Helium declined by 3.1%.
The overall cryptocurrency market cap now stands at $2.23 trillion, and Bitcoin’s dominance rate is 56.2%.
