(Kitco News) – Stocks trended higher on Tuesday while gold, cryptos, and oil recorded losses as a rebound in tech helped boost the major indices, and the lack of additional stimulus measures in China pushed investors back into U.S. markets.
“Despite a strong jobs report bolstering last week’s rally, market sentiment has tempered with growing geopolitical tensions and concerns that the Federal Reserve might maintain a firmer stance on rate cuts due to the robust labor market,” said analysts at Secure Digital Markets.
All eyes are now fixed on tomorrow’s release of the September FOMC minutes for clues about the potential for the next rate cut. The CPI and PPI releases later this week are also of keen interest as expectations for a rate cut of any size start to diminish. The CME FedWatch Tool shows the odds of rates being held steady stand at 13%
“The upcoming FOMC minutes, CPI, and PPI will be critical to risk-on assets as the market looks for confirmation that FED rate cuts can continue to play out through the remainder of the year and next year,” said Alexander Blume, CEO of Two Prime, in a note to Kitco Crypto. “Numbers in line with expectations will benefit markets while numbers either below or above expectations will likely scare markets and result in negative sentiment for BTC and risk-on assets.”
Brian Dixon, CEO of OTC Capital, said his research shows that the “September CPI is expected to show a year-over-year increase, potentially around 2.3% for the headline CPI. The core CPI, which excludes volatile food and energy prices, might also show a modest rise, perhaps maintaining or slightly decreasing from previous months.”
“The market's primary focus will be on what the CPI data indicates about future Fed actions,” he said. “If inflation remains above the Fed's 2% target but shows signs of cooling, this could reinforce expectations for a 0.25% rate cut in November, as suggested by the CME FedWatch Tool. However, if CPI figures come in higher than expected, this might reduce expectations for a rate cut or even hint at maintaining current rates, potentially leading to a stronger dollar and negative reactions in equities and bond markets.”
Dixon said that “a CPI number in line with or below expectations could lead to a positive or neutral market reaction with equities, bonds, and Bitcoin (BTC).”
“Given recent strong employment data, markets might be more sensitive to upside surprises in CPI due to expectations of Fed actions being influenced by both inflation and employment figures,” he added.
Positive momentum is also being generated by the political embrace of digital assets.
“Cryptocurrency, particularly Bitcoin, has become a notable issue in political campaigns, especially in the context of the 2024 U.S. presidential election,” Dixon said. “Candidates have started to address digital assets in their policy platforms, either as a means to appeal to a demographic interested in financial innovation or to critique the regulatory environment's impact on the crypto industry, in my opinion.”
“This development may mark a broader acceptance and recognition of digital assets' significance in the global financial ecosystem,” he said. “The dialogue includes discussions on regulation, the role of cryptocurrencies in combating inflation, and their integration into traditional financial systems, reflecting a new era where digital currencies influence policy-making at the highest levels.”
Dixon suggested that the focus on making Bitcoin a strategic reserve asset is also giving the asset class more legitimacy.
“I believe there has been a significant shift in how Bitcoin is perceived, moving from merely a speculative investment or a means of transaction to a strategic reserve asset,” he said. “This perspective has been amplified by political figures and financial analysts suggesting that Bitcoin could serve as a modern equivalent to gold in a nation's reserve, offering a hedge against inflation and currency devaluation.”
“This shift is underpinned by Bitcoin's characteristics of scarcity, its decentralized nature, and its increasingly recognized role as ‘digital gold,’” he noted. “Discussions around this topic have included proposals for the U.S. to consider Bitcoin in its strategic reserves, drawing parallels with how gold has been historically used but with the added benefits of digital transferability and potential for growth.”
Looking beyond Bitcoin’s characterization as a risk asset, Dixon highlighted that “Recent analyses, including from major financial institutions like BlackRock, have begun to challenge the traditional classification of Bitcoin solely as a risk-on asset.”
“Instead, I believe there is a growing narrative that Bitcoin might be evolving into a risk-off or at least a risk-differentiated asset,” he said. “This perspective is based on Bitcoin's behavior during economic downturns, where it has shown correlations more akin to gold than to stocks or other risk assets. This shift in narrative may suggest Bitcoin's potential role as a diversifier in investment portfolios, offering protection against market volatility in ways that traditional assets might not, thereby redefining its place in investor strategies beyond speculative investments.”
For now, Bitcoin is struggling to break above $64,000 and is trading in the middle of the range it has been in since early March.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin trades at $62,234, a decrease of 1.48% on the 24-hour chart.
At the closing bell, the S&P, Dow, and Nasdaq all finished in the green, up 0.97%, 0.3%, and 1.45%, respectively. WTI fell 4.19% on the day to close at $73.91, and spot gold declined by 0.76% on the session to trade at 2,622 per ounce.
Correction in the altcoin market
Most altcoins in the top 200 recorded losses on Tuesday as Bitcoin’s weakness and profit-taking led to a pullback in coins that had recently recorded double-digit increases.
Daily cryptocurrency market performance. Source: Coin360
FTX Token (FTT) was the biggest gainer, increasing by 12.1% after FTX was cleared to distribute billions in funds to creditors. EigenLayer (EIGEN) enjoyed a gain of 11%, and Aptos (APT) climbed 5.6%. Meme coin cat in a dogs world (MEW) led the losers with a decline of 12.7%, followed by losses of 12.2% for Raydium (RAY) and 11.7% for Hamster Kombat (HMSTR).
The overall cryptocurrency market cap now stands at $2.16 trillion, and Bitcoin’s dominance rate is 56.8%.
