Charts related to global central banks, U.S. financial conditions, and the 10-year U.S. Treasury yield indicate a positive trajectory for cryptocurrency. The impact of last year’s global central bank tightening cycle, including its effects on Bitcoin, appears to have reached its peak. Despite the Federal Reserve’s commitment to higher interest rates, U.S. financial conditions have eased. Additionally, the 10-year Treasury note is expected to continue its recent decline, which is favorable for risk assets.
Bitcoin’s price has surged by 120% this year, with analysts anticipating further gains. Factors contributing to this optimism include expectations of SEC approval for crypto ETFs and the upcoming halving of Bitcoin’s mining reward in April next year.
Support for the bullish case comes from positive macroeconomic indicators, illustrated by a chart from TS Lombard depicting the balance between central banks tightening and loosening since 1947. The recent shift towards easing suggests a departure from the global tightening cycle, potentially leading to increased liquidity in the crypto market. Bitcoin, known for its sensitivity to global liquidity changes, tends to rally in such conditions.
The U.S. Financial Conditions Index (FCI) by Goldman Sachs shows a decline from its recent high, signaling a reversal of tightening witnessed in previous months. Despite the Federal Reserve’s stance on higher interest rates, this decline hints at a resilient U.S. economy, presenting a positive outlook for risk assets, including cryptocurrencies.
The U.S. 10-year Treasury yield has dropped by 50 basis points to 4.43%, a favorable development for Bitcoin. The decrease in the risk-free rate often prompts investors to seek higher returns in assets like stocks and cryptocurrencies.
However, potential risks exist. The reversal of tighter financial conditions, as indicated by Goldman’s FCI index, could prompt a more hawkish tone in Federal Reserve comments, causing markets to reconsider the possibility of another rate hike. This could potentially slow down the pace of Bitcoin’s rally.