In my early May article titled “ Sell in May and Leave the Market,” I explained that we are heading into this year's low liquidity season and that the cryptocurrency markets will need a pause before they turn higher. At this moment in time, I think the slow summer may finally be coming to an end.
The uncertainty of the US election is ahead of us, and given the many events that have unfolded this month, I think we can afford more volatility as investors will “trade the election” until we see the results in November.
Will Trump go to the Oval Office?
Trump will likely become the next president. After the assassination attempt, the prediction markets put his probability of winning at 71%, and now with Biden withdrawing, that percentage has dropped to a comfortable 60%, with Kamala Harris (NYSE:LHX) looking like the second most obvious choice with a current probability of 38%.
Polymarket - 07-26-2024
Digital assets are the talk of the hour
What's interesting about this election is that digital assets have become a topic that the candidates are discussing. It seems that the political elite have finally understood that the more than 50 million cryptocurrency holders in America represent a large voter base.
This weekend, both Trump and Kennedy Jr. will speak at the Bitcoin2024 conference. Kamala Harris was also expected to speak there but declined the opportunity just a few days ago.
Another interesting aspect is Trump's choice of his running mate, JD Vance. JD Vance is a Bitcoiner, has been a vocal supporter of the cryptocurrency industry in the Senate, and one of Gary Gensler's most vocal critics in recent years.
One of the holders of Bitcoin on the nomination ticket. What do you think that?
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Is it finally time to lower interest rates?
It has now been a year since the Fed raised its benchmark interest rate to between 5.25% and 5.5%, keeping that target range steady thus far. Meanwhile, Jerome Powell has repeatedly said that interest rates will not be cut until something happens or before the Fed is convinced that inflation rates will trend down towards the 2% target rate.
The latest economic data suggests that the Federal Reserve may soon begin cutting interest rates:
The Federal Reserve is close to its target inflation rate of 2%. In June, the monthly CPI fell by 0.1%, while the annual CPI rose by 3%.
The US economy is finally starting to slow down. GDP growth slowed to an annual rate of 1.4% in the first quarter of 2024, down from 3.4% in the previous quarter.
The labor market is also declining; The unemployment rate in June rose to 4.1%, its highest level since November 2021.
Additionally, Jerome Powell appeared on Capitol Hill this month and warned that “reducing policy adjustment too late or too little could unduly weaken economic activity and employment.”
Is the 'higher for longer' system coming to an end?
It's still a big balancing act for the Fed, but it seems inevitable that something will move sooner rather than later. Currently, the market expects a 95.3% chance of a rate cut at the September FOMC meeting.
Bitcoin remains resilient despite the sell-off
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The price remained in a range between $60,000 and $70,000 through most of the summer despite drying up of liquidity from Bitcoin ETFs, which pushed the price from lows of $42,000 before approval to record highs of $73,000 in March. .
But what is even more striking is Bitcoin's resilience in the wake of the German state of Saxony's recent $2.87 billion sell-off.
However, there is a risk of additional selling pressure. The Mt. Gox, the defunct cryptocurrency exchange, has announced a repayment plan, which aims to repay approximately $9 billion worth of Bitcoin and creditors with Bitcoin Cash. 140,000 Bitcoin; That is more than $9 billion at the current market price. To date, more than 40% of the repayments have already been distributed to creditors.
On the brighter side, payment in kind does not equal selling pressure as creditors may decide to convert their BTC into BTC.
On-chain data shows that Bitcoin withdrawals on Kraken rose after the exchange completed the distribution of its share of allocated payments. This is a sign that a large number of Mount Gox creditors may be moving their payments to cold wallets for long-term HODLing.
Personally, I remain optimistic that the price of Bitcoin will trend higher in the second half of the year based on its current resilience amid the long-awaited repayments by Mt. Gox, which most expected would be a huge sell-off event.
Additionally, there are some macro and industry-specific factors that could be catalysts in maintaining current price levels or pushing Bitcoin higher:
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A fair number of creditors may decide to hold onto their Bitcoin, causing only short-term downward pressure on the price of Bitcoin.
Once the uncertainty over the Jebel Jukes payments is over, there will be no significant selling pressure expected.
There is a high probability that the Fed will cut interest rates in September, which will likely lead to a rally in risk assets.
Liquidity is gradually returning to the market. Blackrock's Bitcoin Spot ETF recently recorded a daily net inflow of $526 million, the largest since March 13.
The cryptocurrency market may soon play catch-up with the S&P 500, Nasdaq, and gold, which showed strength in the second quarter while Bitcoin lagged over the past three months.
Cryptocurrency markets are tilting in favor of the Republican Party, and Trump remains likely to take the presidency at the moment.
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