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The stagnation of bitcoin price despite the first rate cut by the US Federal Reserve since 2020 has left many investors and market traders perplexed. In a new post on
Why is bitcoin stagnating?
kang x.com/Rewkang/status/1844079861092241507″ target=”_blank” rel=”nofollow”>challenges the prevailing market belief that interest rate cuts by the Federal Reserve will significantly increase the prices of bitcoin and cryptocurrencies. “Federal Reserve rates are just one of the factors affecting global liquidity, and global liquidity itself is just one of the factors influencing cryptocurrency prices,” he said. Kang believes that “it makes no sense to see btc rally 4.5x during a period when rates were hitting multi-decade highs, showing little correlation between rates and btc, and then expect a strong inverse correlation to occur.” as soon as rates start to rise.” below.”
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He acknowledges that some argue that future rate changes are already priced into the market, but responds that this logic should apply equally to rate increases and cuts. “This is not to say that rates are not important, but rather that they are heavily overweighted by most market participants,” Kang added. He notes that stocks have a stronger link to interest rates due to factors such as discount rates used to value cash flows and mature corporate debt markets used to finance growth.
Addressing China's recent economic stimulus, Kang notes that its impact on bitcoin and cryptocurrencies is even less significant than many believe. “It's not surprising to see that people extrapolating China's stimulus as extremely bullish for cryptocurrencies are not primarily Chinese,” he commented. According to Kang, those within China have noticed a shift from cryptocurrency investments to A-shares in the stock market.
Backing up his claim with data, Kang noted: “Since the Chinese stimulus was announced, USDT has been trading at a discount to CNY. Still at 3% recently.” This suggests a decline in demand for the main stablecoin, Tether (USDT), in China, in line with a move towards traditional stocks.
Despite his criticism, Kang clarifies that he is not bearish on bitcoin. “I just think some people have outgrown skis a little bit,” he said. Kang anticipates bitcoin will trade within a range of $50,000 to $72,000 until a significant new catalyst emerges.
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However, he remains optimistic about the opportunities within the market, stating: “Constant capital turnover and new projects in development mean there will still be coins to buy to generate bull-like returns.” However, Kang warns of possible volatility due to leveraged positions: “The market will still be prone to minor corrections if leverage increases too much (decently high at the moment).”
Interacting with the community, x user Jakubko (@erkousti) suggested that bitcoin's price rise in 2023 is more related to the anticipation of an ETF launch than interest rates. Kang agreed and responded, “That's exactly my point. Interest rates are just a small piece of the puzzle. Although they were negative for btc, other factors such as the ETF were able to push the price of btc up. Other factors could push it up or down here. We are not guaranteed infinite prices just because of rate cuts.”
Echoing this sentiment, crypto analyst Astronomer (@astronomer_zero) commented: “I think interest rates (and yield inversion) only have a negligible impact on the price. They are rather an important holistic metric for bond market players. But zero effect on stocks or cryptocurrencies has already been demonstrated.”
Another analyst, Res (@resdegen), x.com/resdegen/status/1844104877825577293″ target=”_blank” rel=”nofollow”>highlighted the correlation between bitcoin and the money supply: “btc is more correlated with the quantity of money than with interest rates. It started to rise as the RRP decreased, which ended in positive net liquidity, regardless of interest rates, which were in fact close to the maximum.”
At the time of publication, btc was trading at $60,903.
Featured image created with DALL.E, chart from TradingView.com
