Bitcoin (BTC) experienced a 4.6% surge in price on May 3rd, even though it remained below the $62,000 mark. This increase coincided with the release of new economic data from the U.S., indicating a potentially more lenient monetary policy from the Federal Reserve and a decrease in outflows from U.S. spot Bitcoin exchange-traded funds (ETFs).
The positive economic indicators include the announcement from the U.S. Department of Labor that jobless claims remained steady at 208,000 for the week ending April 27th. This figure represents the lowest level since mid-February and suggests a strong labor market.
In addition, the most recent Employment Cost Index showed a 4.2% year-over-year increase in labor expenses for the first quarter. This data has increased investor confidence in the possibility of the Federal Reserve lowering interest rates by the end of 2024. Historically, such rate cuts have favored riskier assets, including cryptocurrencies.
According to the CME Group’s FedWatch Tool, market participants now believe there is a 61% chance of the Federal Reserve reducing rates below 5.00% by December 18th, which is a significant increase from the previous week’s 40%. If this trend continues and fixed-income investment yields decline, investors are likely to seek higher returns in alternative asset classes such as stocks, commodities, and cryptocurrencies.
Another factor that could boost the price of Bitcoin is the potential for increased capital inflow. For the first time since November 2022, the U.S. M2 money supply has turned positive in May. Historically, rising M2 has correlated with the outperformance of cryptocurrency markets compared to traditional financial markets. Even a small 1% allocation from the estimated $6 trillion sitting idle in money market funds towards Bitcoin would result in a $60 billion influx into the cryptocurrency market.
Data from Farside Investors also indicates total net inflows of over $11.2 billion since the introduction of U.S. spot ETFs in January. Furthermore, there have been reports of renewed discussions about Bitcoin among sovereign wealth funds and endowments, with the involvement of Robert Mitchnick, head of digital assets at BlackRock, the world’s largest asset manager.
The recent surge in Bitcoin price and tech stocks, particularly after Apple announced a record-breaking $110 billion stock buyback program, has raised concerns about its sustainability. This move by Apple suggests a lack of confidence in future demand growth, potentially leading to a lack of investment in new product lines or expansion of sales channels.
However, the combination of macroeconomic indicators pointing to potential interest rate cuts, a slowdown in stock market growth, and a decrease in outflows from U.S. spot Bitcoin ETFs may have instilled confidence in investors. Unlike the previous day, where various U.S. spot Bitcoin ETF funds experienced net outflows of $564 million, only Grayscale GBTC saw net outflows on May 2nd.
In the past, periods of fear, uncertainty, and doubt (FUD) in the cryptocurrency market have dampened investor enthusiasm. However, as investors become more familiar with the network’s automatic difficulty adjustment and the potential revenue increase for remaining miners during a hash rate reduction, they often return, leading to price recoveries.
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Bitcoin (BTC)
Bitcoin ETF
Stocks
