A few weeks of limited volatility and ranging between the $60k and $67k range for Bitcoin are keeping traders in suspense. This was well captured by a few days of relatively low inflows/outflows to the Bitcoin ETFs over the last week.
The trend seems to have turned however as this week saw $726m of inflows so far. In times of little price action, crypto traders tend to become macro-economists and Federal Reserve lip-readers. One topic to catch attention was the growth of the US M2 money supply turning positive for the first time since November 2022. This indicates a loosening of monetary conditions which has historically correlated with a strong performance for Bitcoin. US Equities markets forming all-time highs has further supported optimism. Markets are also further pricing in rate cuts due to weaker jobs and inflation numbers.
On the downside, growth across the US and worldwide is slowing. Indices like the US SM Manufacturing & Services Employment and the NFIB Hiring Plans survey show weak numbers. Globally, Chinese monetary policy is continuing to tighten with the M2 money supply shrinking and weak Chinese consumer demand. The question of a ‘hard economic landing’ preoccupied economists over the past year. So far, economic performance has surprised most by the upside. But a sudden turn in economic fortunes for both the US and the world at large would prove a major unexpected stumbling block in a year filled with important elections. We may soon be finding out if low rates and liquidity growth can drive Bitcoin higher in a weak economic environment.
In other news, a bill to strike down the Securities and Exchange Commission’s (SEC) staff accounting bulletin “SAB 121” has just become the first-ever crypto bill to be sent for signing off to a US President. After getting bi-partisan approval from both Congress and the Senate, it is now under the threat of a presidential Veto. President Biden, for now, is following the line of anti-crypto senator Elizabeth Warren who is against the bill. SAB 121 makes it expensive for banks to offer cryptocurrency custody. The rule forces them to record customer crypto holdings as a liability rather than an asset on the balance sheet. This of course is an indirect way of how the SEC tries to block crypto adoption. These crypto funds held by the bank are not a risk taken on by the bank but belong to customers. The rule is a straightforward power abuse by the SEC which was noted Legislators.
Whether President Biden ends up using his Veto power or not, this latest episode highlights that crypto can receive bipartisan support. The thousands of crypto holders who were calling their legislators also show that crypto is no longer a niche topic. Both TradFi banks and crypto pushed for SAB 121 to go a sign that interests are starting to align. The market structure bill, known as FIT21, will be the next major piece of crypto legislation to reach Congress. It introduces comprehensive regulation for the industry and will also finally clarify how cryptocurrencies can launch without being labeled securities. For now, most observers expect that it will not pass the Senate.
In between macro uncertainty, and legislative and legal battles, it is hard to predict where prices will be going next. The trajectory is upwards but traders must expect a turbulent road ahead.
Follow Our Official Social Channels:
Join Our Community/Discussion Group: