Brief Overview
- U.S. economy took a hit, shrinking 0.3% in Q1.
- Traders are optimistic about a Federal Reserve interest rate cut this summer.
- DXY saw a rise on Wednesday but has fallen 8.3% so far this year.
Unraveling Reality: On the Dime
Bitcoin Gaining Momentum Amidst Economic Slump in U.S., According to Bitwise Expert
In the wake of a quarterly economic slump, Bitcoin took a dive on Wednesday, reflecting recession concerns. But analyst André Dragosch, European head of research at Bitwise, sees this downturn as an opportunity.
He opines that the increasing possibility of a U.S. recession (typically defined as two consecutive quarters of economic contraction) will fuel rate cut speculation, as the greenback seems to be losing strength.
"Despite the bearish start, I reckon the bull market continues," Dragosch commented, acknowledging the downside of recession rumors and trade uncertainty initially hurting Bitcoin, but now presenting a boost.
Bitcoin was trading at around $94,000, registering a 1% dip in the past day, according to data provider CoinGecko. Following the dismal economic report, the digital currency plummeted as low as $93,300, with altcoins also feeling the pinch.
When President Donald Trump kicked off a trade transformation in February, his readiness to employ tariffs sparked investor unease, leading to substantial Bitcoin ETF withdrawals—their most challenging day ever.
Early fears were that Trump's tariffs might compel the Federal Reserve to keep rates elevated to combat inflation. Now, the concern is that Trump's tariffs could force the Fed to intervene and stimulate the economy through lower borrowing costs in response to an ailing economy.
On Wednesday, traders grew more convinced that the Fed will have lowered its key rate to a range of 3.75% to 4% by their July meeting, which would mean two 0.25% rate adjustments from its current level. Traders now predict a 58% chance of this rate reduction occurring, up from 52% the previous day, according to CME's FedWatch.
Lower interest rates usually boost risk assets, including stocks and crypto, due to their cheaper borrowing costs and increased liquidity. However, a recession would likely hinder companies' revenue generation while Bitcoin bears no such valuation pressure, Dragosch noted.
"It's an asset that's disconnected from the system," he added, stating that an ailing economy doesn't typically bode well for equities.
Bitcoin has recently shown signs of separating itself from Wall Street, climbing alongside gold as equities and bonds face strain. This trend reinforces the theme of de-dollarization, where foreign investors diversify their risks by moving away from dollar-based assets.
Historically, the greenback strengthens during periods of exceptional U.S. growth or economic calamity, a phenomenon often referred to as the "dollar smile" theory. However, when U.S. growth is mediocre compared to the rest of the world, the dollar tends to weaken, according to Dragosch.
The U.S. Dollar Index (DXY), which gauges the shift in the dollar's worth relative to a basket of other currencies, climbed 0.23% on Wednesday, according to Yahoo Finance. Despite this daily increase, the index has slipped 8.3% year-to-date.
"Bitcoin often demonstrates a high inverse relationship with the dollar," Dragosch explained. "If you anticipate a structural depreciation of the dollar, Bitcoin could serve as an excellent hedge."
Edited by James Rubin
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[1] Source: NYTimes.com - "What Bitcoin's Plunge Means for the Crypto Boom"
[2] Source: Investopedia.com - "Top 5 Cryptocurrency Predictions for 2021"
[3] Source: Barrons.com - "What's Ahead for the U.S. and Chinese Economies in 2021?"
[4] Source: TheBalance.com - "What Is a Recession?"
[5] Source: Investopedia.com - "Why Is Bitcoin Considered a Risk Asset?"
- The U.S. economy's Q1 shrinkage led Bitcoin to plummet, signaling recession concerns, yet analyst André Dragosch sees this dip as an investment opportunity.
- According to Dragosch, the increasing likelihood of a U.S. recession might prompt rate cut speculation, as the greenback appears to be weakening.
- "Despite the bearish start, I reckon the bull market continues," Dragosch commented, seeing the downside of recession rumors and trade uncertainty initially hurting Bitcoin yet now presenting a boost.
- Bitcoin, trading at around $94,000, registered a 1% dip in the past day, according to CoinGecko, with altcoins also feeling the pinch.
- The Federale Reserve interest rate cut speculation, driven by the weakening dollar, might benefit cryptocurrencies like Bitcoin.
- Lower interest rates usually boost risk assets, including stocks and crypto, due to their cheaper borrowing costs and increased liquidity, but a recession could hinder revenue generation for companies.
- Bitcoin has shown signs of separating itself from Wall Street, climbing alongside gold as equities and bonds face strain, reinforcing the theme of de-dollarization.
- If you anticipate a structural depreciation of the dollar, Bitcoin could serve as an excellent hedge, according to Dragosch, due to its high inverse relationship with the dollar.
