09/03 update below. This post was originally published on September 02
Bitcoin
Bitcoin
and crypto prices have surged this year as the U.S. dollar index falls to year-to-date lows (with the Coinbase chief executive last week revealing an AI game-changer).
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The bitcoin price is trading around $60,000 per bitcoin, up from January lows of under $40,000, as traders bet a fresh injection of liquidity by the Federal Reserve will put the bitcoin and crypto market on the “cusp” of a major move.
Now, as China gears up to drop a bitcoin price bombshell, fears are swirling the U.S. dollar is on “the verge of a total collapse,” setting up the bitcoin price for “a critical tipping point.”
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The U.S. dollar has recently hit a new 2024 low while the bitcoin price has surged so far this year … [+] as Federal Reserve chair Jerome Powell cues up an interest rate cut.
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“The U.S. Dollar Index just hit a new 2024 low [and it’s] actually still relatively high, but it looks like it’s on the verge of a total collapse,” economist and gold bull Peter Schiff posted to X.
“The index could easily sink below 90 before year-end, challenging the 2020 low,” Schiff, the founder of money manager Euro Pacific Asset Management and a bitcoin and crypto skeptic, later added. “I think that low will be breached in 2025, triggering a U.S. dollar crisis, crashing the economy, and sending consumer prices and long-term interest rates soaring.”
09/03 update: The bitcoin price has continued on its recent downward trend as September gets underway, which is historically a bad time to be holding bitcoin.
“September has traditionally been a volatile month for bitcoin, with an average return of 4.78% and a typical peak-to-trough decline of 24.6%,” analysts with the Bitfinex crypto exchange said in emailed comments.
The researchers warned that it’s possible a bitcoin price crash could send bitcoin under $40,000 if the Federal Reserve follows through with its well-telegraphed plans for an interest rate cut during its September meeting.
“This volatility is often attributed to the end of the summer trading lull, as fund managers return from vacation and human-driven trading activity increases. The anticipated rate cut in September adds another layer of complexity, potentially exacerbating the marketʼs volatility. This historical price action for September also aligns with our view of a projected 20% drop in bitcoin prices following a rate cut. However, itʼs worth noting that historical trends also show that when August ends in the red, September has occasionally defied expectations and delivered positive returns. This could provide a counterargument to the assumption that September will necessarily be a bearish month for bitcoin.”
Last month, Fed chair Jerome Powell’s speech during the annual economic symposium of central bankers at Jackson Hole, Wyoming, struck a dovish tone and cued up a September interest rate cut, driving down the U.S. dollar.
“It’s been a tough summer for the greenback,” Neil Roarty, analyst at investment platform Stocklytics, said in emailed comments. “As recently as April, dollar dominance looked unstoppable as its price soared versus almost all global currencies. Now it’s at 2024 lows against the euro, the pound and the yen.”
The Federal Open Market Committee’s (FOMC) July meeting minutes had earlier revealed policymakers are more dovish than previously thought, suggesting interest rates could come down sharply after rocketing to 23-year highs at a historical pace through the Biden administration as inflation spiraled to highs not see since the 1980s.
The Fed is now widely expected to kick off a rate-cutting cycle at its two-day monetary policy meeting that begins on September 17.
“There’s now speculation [interest rates] might come faster than initially predicted,” Roarty said. “As many as 100 basis points could be knocked off current rates by the end of the year. This will cool dollar expectations for the rest of 2024, but it’s worth keeping a close eye on how other central bankers react. That all important rate gap— the difference in interest rates between countries—could be the driver of some significant currency volatility over the coming months. Strap in for what could be a bumpy ride.”
In Europe, the E.U.’s European Central Bank and the U.K.’s Bank of England are both expected to further cut rates after beginning loosening cycles in recent months while questions remain over the Bank of Japan after it caused a global market meltdown when it surprised traders with an interest rate hike in July.
Meanwhile, the bitcoin price has lost the momentum it built up through the first half of 2024, casting doubt over its performance through the rest of the year.
“While we remain optimistic about digital assets’ mid- to long-term prospects, the current evidence calls for caution,” Markus Thielen, the chief executive of 10x Research, wrote in an emailed note.
“Although the market experienced near V-shaped rebounds following dips in early May, early July, and early August, the underlying market structure and fundamentals have progressively weakened. As a result, each dip has become deeper, and the subsequent recoveries have been more subdued. The latest end-of-month data indicates that we may be nearing a critical tipping point in September, marked by a decline in demand.”
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The bitcoin price has surged this year as the U.S. dollar declines amid expectations of a Federal … [+] Reserve interest rate cut.
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Other bitcoin and crypto market watchers have pointed to bitcoin’s historical poor performance in September as a cause for concern.
“September is a historically negative month for bitcoin, as data shows it has an average value depletion rate of 6.56%,” Innokenty Isers, founder of U.K.-based bitcoin and crypto exchange Paybis, said via email, noting the recent negative investor sentiment around bitcoin has driven its price down from its recent peak.
“Should the Fed cut interest rates in September, it might help bitcoin re-write its negative history. This is because rate cuts generally lead to excessive U.S. dollar flow in the economy. 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 exchange-traded fund (ETF) adoption, and favorable hash rate might make September a relatively better month for bitcoin this quarter.”
The bitcoin price rally so far this year has been turbo-charged by the long-awaited arrival of a fleet of spot bitcoin ETFs on Wall Street.
The bitcoin ETFs from BlackRock and Fidelity have surged to become some of the fastest growing ETFs of all-time since their January debut.
