Bitcoin (BTC) gained 4.3% between Aug. 16 and Aug. 18 but reversed this gain after failing to sustain levels above $60,000. The price corrected to $58,500 while the S&P 500 index futures and gold approached their all-time highs on Aug. 19. This suggests that the movement was exclusively related to cryptocurrencies. However, attributing Bitcoin's recent weakness to a single event would be premature, as its price has struggled to close above $63,000 throughout August.
Strong macroeconomic data fails to favor Bitcoin price
Some analysts suggest that the unwinding of carry trades in Japan, driven by rising interest rates, is a primary factor behind Bitcoin's recent weakness. Other contributing factors may include global recession risks and Bitcoin miners' profitability. It is crucial to assess whether these factors continue to suppress Bitcoin's price to determine how long the $63,000 resistance level will hold.
Renaissance Macro Research notes that the strengthening of the Japanese Yen since mid-July has contributed to weakness in Bitcoin and cyclical stocks, which are heavily reliant on debt leverage. The Japanese currency appreciated by 12% against the US dollar from July 10 to Aug. 5, causing market turbulence. However, this issue appears to have stabilized after Japan's GDP grew at an annualized rate of 3.1% in the second quarter.
Regardless of the Japanese carry trade's impact on risk markets, Bitcoin investors are also significantly influenced by global socio-economic expectations. For example, if perceptions of recession and layoffs increase, traders may reduce their cryptocurrency exposure. Conversely, if investors anticipate economic resilience, stocks generally outperform due to the positive impact on corporate earnings.
Goldman Sachs, one of the leading global investment banks, reduced its probability of a US recession from 25% to 20% following stronger-than-expected jobless claims and retail sales data, according to Yahoo Finance. Goldman’s chief US economist, Jan Hatzius, indicated in an Aug. 18 note that the US Federal Reserve (Fed) should consider a 0.25% rate cut in September, with the possibility of a 0.50% cut.
Adding to the likelihood of a soft landing for the Fed was an Aug. 19 financial stability agreement between the US Treasury Department and China’s central bank. According to CNBC, the cooperation discussed capital markets, cross-border payments, operational resilience, monetary policies, and shared reports of risk stress tests on financial institutions. This cooperation boosted investor confidence and alleviated fears of a potential stock market crash.
Spot Bitcoin ETFs outflows and miners’ profitability hurting investors’ sentiment
Apart from the macroeconomic environment, Bitcoin’s own metrics also contributed to the dip below $63,000. Notably, flows in spot exchange-traded funds (ETFs) reveal reduced interest from institutional investors, with these products experiencing $372 million in outflows over the two weeks ending Aug. 16, according to Farside Investors. Historically, inflows into spot ETFs have been a significant driver of Bitcoin’s price increases, often signaling the entry of large traditional investment managers into the cryptocurrency market.
Additionally, concerns about declining Bitcoin miners' profitability have emerged, as these entities hold substantial BTC reserves and may be compelled to sell their coins to cover high energy costs. According to Glassnode data, miners' balances currently stand at 1.80 million BTC, relatively unchanged from the previous month.
Related: Bitcoin miners may gain $13.9B yearly from 20% shift to AI and HPC — VanEck
The "hashprice index," which measures petahash per day in USD, has fallen sharply since the April 19 halving, stabilizing around $43 per petahash per day. This metric indicates how much a miner can expect to earn based on a given hashrate; a lower index suggests diminishing returns. As a result, there are concerns that less-profitable miners may be forced to cease operations if Bitcoin’s price remains stagnant for an extended period.
In summary, Bitcoin's price weakness stems from stronger confidence in global economies, reduced demand for spot Bitcoin ETF products, and fears that some miners may exit the market. Until these factors change, the likelihood of Bitcoin's price surpassing $63,000 in the near term remains low.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.