Bitcoin (BTC) has struggled to maintain above $60,000 for an entire week, with the latest rejection occurring on Aug. 27. The subsequent 9.9% two-day correction, which saw Bitcoin fall to a low of $57,918 on Aug. 28, resulted in the forced liquidation of $143 million in leveraged BTC longs on derivatives exchanges. Traders are now questioning why Bitcoin keeps failing to break above $60,000.
Spot Bitcoin ETF outflows are a lagging indicator of Bitcoin’s demand
Some analysts attribute the recent weakness to the disappointing spot Bitcoin exchange-traded fund (ETF) outflows. However, such data is typically reflexive, meaning traders often turn bearish after a news event alters their perception. More crucially, Bitcoin's most recent correction on Aug. 29 coincided with movements in the S&P 500 index.
Bitcoin/USD (left) vs S&P 500 futures (right). Source: TradingView
One significant change leading up to this event was the sharp increase in the 2-year US Treasury yields, which had previously dipped to 3.85%, the lowest level in over three weeks. However, on Aug. 29, a sharp reversal occurred, driving the yield to 3.90%, signaling that investors were offloading these instruments in favor of higher returns.
According to a Zacks Research note, this reduced risk appetite was driven by uncertainty surrounding Nvidia's corporate earnings, released after the stock market closed on Aug. 29, and the upcoming July US Personal Consumption Expenditures (PCE) index on Aug. 30. At the time, investors were concerned that a high inflation reading could delay anticipated interest rate cuts by the central bank.
Despite exceeding estimates, Nvidia shares reacted negatively, dropping to their lowest level in two weeks during after-hours trading. As for the inflation metric, there were no surprises as the PCE rose 2.6% year-over-year, boosting investor confidence that the US Federal Reserve (Fed) might soon ease some of its restrictive monetary policies aimed at curbing inflation.
Thus, Bitcoin’s sharp rejection at the $61,000 level on Aug. 29 can be attributed to concerns from traditional finance investors, particularly due to the heavy reliance on tech companies' growth, driven by artificial intelligence demand, and the market’s pricing of a 100% probability of an interest rate cut in September.
In essence, even slightly less favorable economic indicators can cause drastic movements in fixed-income markets, which in turn reverberate through the stock market and affect Bitcoin’s price, creating a cascading effect. However, this does not fully explain why Bitcoin failed to sustain the $60,000 support on previous occasions throughout August.
Bitcoin is already a top-10 global tradable asset, but further upside is possible
Rather than fixating on Bitcoin’s nominal price, one should consider how the cryptocurrency’s $1.2 trillion market capitalization compares to broader financial markets and currencies. This level already places Bitcoin among the top 10 global financial instruments, ahead of Warren Buffett’s Berkshire Hathaway conglomerate and TSMC, the world’s largest chipmaker.
Top global tradable assets, USD. Source: 8marketcap
To put this into perspective, Berkshire Hathaway’s annualized profits are $121 billion, meaning the company could purchase the entire Bitcoin market capitalization with 10 years’ worth of its net income. In fact, the company holds $277 billion in cash and equivalents, which would be enough to acquire 4.61 million BTC at $60,000, or 23% of the coins currently in circulation.
Related: It's time to ditch Bitcoin Power Law Theory
When viewed from the perspective of base money—physical currency and bank reserves held by commercial banks at their respective central banks—Bitcoin’s $1.2 trillion value aligns with that of the United Kingdom’s British pound. Under this analysis, Bitcoin’s only remaining competitors are the US dollar, the euro, the Chinese yuan, and the Japanese yen.
None of these fundamental metrics seem sufficient to keep Bitcoin’s price below $60,000. However, they do suggest that traders are likely questioning the current adoption rate, including the size of the Bitcoin ETF market and the use of Bitcoin’s network as a settlement layer. For now, investors appear to be prioritizing tech growth and the relative stability of the world’s largest economies, but this sentiment could easily shift over time.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.