Bitcoin rallied above $60,000 despite Federal Reserve rate hike fears and steady outflows from the BTC spot ETFs. Is the rally a bull trap?
Bitcoin (BTC) reacted positively to US Federal Reserve Chair Kevin Warsh's remarks on stubborn inflation. Despite the gains on Wednesday, traders fear that incentives for fixed-income investments and strong earnings momentum in tech stocks will continue to pressure non-yield-bearing assets like cryptocurrencies.
US 5-year Treasury yield (left) vs. Bitcoin/USD. Source: TradingView
The US 5-year Treasury yield jumped to 4.22%, meaning traders demanded higher returns to hold government bonds. Even as inflation eventually eases and WTI crude oil prices fell to a 4-month low, investors anticipate monetary expansion. Regardless of how the Fed manages interest rates and its balance sheet, the US Treasury dictates debt issuance trends.
Implied odds of FED interest rates on Sept. 16. Source: CME FedWatch Tool
US government bond futures implied 64% odds of interest rate hikes by September, up from 23% one month prior. The higher expected return on fixed-income investments came as the US dollar strengthened against other major global fiat currencies, which is especially concerning for alternative hedges such as gold and Bitcoin.
Gold/USD (left) vs. US dollar strength (DXY). Source: TradingView
Despite the gains on Wednesday, gold prices are down 12% in two months, while the US dollar strength (DXY) nears its highest mark in one year. This vote of confidence in the US economy partly stems from AI sector strength, evident in the 25% gains in the Nasdaq 100 index. However, some specific tech sub-sectors have recently signaled weakness, which could act as a catalyst for Bitcoin and gold.
Micron (MU US) and SanDisk (SNDK US) shares saw intraday losses exceeding 9% on Wednesday after competitors SK Hynix (000660 KR) and Samsung (005930 KR) announced plans to expand capacity. Still, the move can hardly be deemed a trend reversal as the iShares SOX Semiconductor Index ETF (SOXX US) gained 78% in three months.
Continued outflows from US-listed spot Bitcoin exchange-traded funds (ETFs) have shattered bulls’ hopes, reinforcing a negative price spiral as negative news gets amplified while positive events barely register.
US-listed spot Bitcoin ETFs daily net flows, USD. Source: SoSoValue
Regardless of the rationale behind the sales, Bitcoin’s weakness, 53% below its all-time high, does not inspire confidence in the $60,000 support level.
Source
This article is syndicated for educational reading. For the latest updates, visit the original publisher.
Read on cointelegraph.com
