The growth of Bitcoin (BTC) thus far this year has been hinged specifically on several macroeconomic indices. As market investors evaluate monetary policies from the United States Federal Reserve, they have managed to act cautiously all year.
Bitcoin (BTC) price action has been closely tied to several macroeconomic indices so far this year. As market participants have digested monetary policy updates from the United States Federal Reserve, they have largely treaded cautiously throughout the year.
This caution has been evident in Bitcoin’s narrow trading range since March. While the market has seen bursts of activity over the past two quarters, the remaining months could hold further trends to watch.
The US Dollar is poised to take a subtle hit with the potential rate cut from the Federal Reserve. As Chairman Jerome Powell has teased the cut, stakeholders are eyeing what it could mean for the USD and Bitcoin.
Genesis of US Dollar frailty While Bitcoin may be known for its volatility, the US Dollar is a sensitive fiat currency. As the world’s reserve currency, it is subjected to immense pressure from monetary policies. As crypto analyst CryptosRus aptly noted, the USD is weakening.
If interest rates are cut, corporations will have relatively more operating cash flow. This is because they will spend less on acquiring debt, leaving them with more cash. This principle extends to households and anyone affected by monetary shifts at large.
This excess cash flow is not favorable for the Dollar. According to basic economic theory, excess cash flow devalues the Dollar, which could ultimately lead to inflation.
This trend is playing out similarly to the COVID-19 era, where several governments issued free cash to households in response to the pandemic fallout.
While these cash freebies garnered short-term favorability with governments, the economic implications led to unsustainable inflation. Statista shows that US inflation rose as high as 9.1% in June 2022.
This figure is in stark contrast to the 0.6% recorded in June 2020 before the stimulus reached the public.
The resulting inflation led to rate hikes, which the Federal Reserve is now attempting to walk back.
Bitcoin to capitalize on USD woes Investors are typically concerned with preserving value first and foremost. Once value is preserved, they can then project to grow it. With a devalued Dollar, a new approach is necessary.
This is where Bitcoin steps in. The coin’s use case has drastically evolved over the past decade. While Satoshi Nakamoto designed it as a means to send value in a Peer-to-Peer (P2P) setting, corporations like MicroStrategy now hold it as their reserve assets.
The rationale is clear, as Bitcoin has a high growth rate compared to traditional assets. This growth is likely to be amplified if the Federal Reserve cuts rates and injects more money into the economy.
Considering Bitcoin’s inverse correlation with the USD — where a decrease in the US Dollar value corresponds to an increase in BTC price — imminent price growth may be on the horizon. At the time of writing, Bitcoin was trading at $59,034, down 20% from its All-Time High (ATH).
The catalyst needed to shave off this loss may lie in the paths taken by the USD moving forward. By extension, the Fed may be the next الكبير role in enabling Bitcoin in the coming weeks.
Spot Bitcoin ETF advantage Institutional investors need access to board the BTC train if the Feds raise interest rates and the dollar slips. This is where the spot Bitcoin ETF product comes into the picture.
The Securities and Exchange Commission (SEC) acknowledged the asset when it approved Bitcoin ETFs in January. So far, Morgan Stanley, Wells Fargo, and Goldman Sachs have significant exposure to the product.
However, a more drastic monetary shift is needed to trigger more mainstream adoption of Bitcoin.
The tide is turning in the global financial ecosystem, and the US is leading the charge. While the future of the US Dollar looks bleak, that of Bitcoin looks bright, with the immediate target being the previous ATH.
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