- Markets are bouncing but rising rapidly while key crypto coins are hanging on
- Interest rate cuts in the US and China have not reset the crypto sector as many expected
- The S&P 500 is breaking records, China provides huge liquidity, and its stocks are rising
- Some altcoins are showing explosive growth, but Bitcoin awaits, and Ethereum is facing difficulties
We may be seeing a strange pattern, especially if you didn’t read last Sunday’s topic.
However, the extent to which lower interest rates in the U.S. and then China, with all the huge amount of liquidity released, did not cause a rapid and sustained rise in the key cryptocurrency – still can be surprising.
Especially if you take into account the explosive growth of some non-key altcoins while Bitcoin is hovering and Ethereum is causing many to worry.
This week, the previous conclusions have gained new arguments, but there are also additional factors to consider.
Markets, Stocks, Bitcoin, Ether, and Altcoins – What Do the Numbers Show Us?
First, let’s look at the S&P 500, which recently reached a new, but already regular, all-time high. With all the jumping dynamics, its index is already reaching its peak for a few weeks.
At the same time, the key crypto Bitcoin, although showing steady results, but still not those that everyone expects, especially in the context of all the favorable factors.
Bitcoin price is sitting just above the 200-day moving average, the purple line, which serves as a major support line. Of course, we still have the 50 and 100-day moving averages which are now right above the Bitcoin price and we need to go back higher.
And if there is a further price decline we need to hold hard at $55.4K which is now the key area for Bitcoin. We may see a reversal soon.
The second key crypto Ethereum is not showing at all comforting results at the moment and all the major exponential moving averages are going down.
The current price is $2400 and we can’t even get back up to the old level of $2800 let alone make new highs, seeing Ethereum 50% below its previous peak.
Meanwhile, altcoin SPX 6900 is up 8000% in the last month, and Solana Liquid Derivative is up 14,000%.
Why Is Everyone Expecting a Bull Market Right Now, and What Are the Doubts About?
All of this is happening against the backdrop of the FED cutting interest rates, followed by a similar move from China and a series of economic stimulus, as well as a general increase in the M2 money supply.
No doubt here, that this is a huge liquidity release, and such cases should work well for all the markets, also the crypto market. But this time the thing is, that it was expected by many to go into the crypto markets immediately, and as we mentioned, probably it’s not the case this time.
That is how many favorable factors we have, and how significant they are – it is reasonable that many expected the crypto sector to rise.
Look at the increase in the M2 money supply that deserves special attention, because if we look at the correlation with Bitcoin, it looks promising.
Remember how much noise China made right after the US in addition to cutting interest rates. In addition to rate cuts and other economic stimulus, the People’s Bank of China swapped a 500B yuan line to prop up its stock market, which is essentially $70.62B and that’s huge liquidity.
Global central banks, except the Bank of Japan, are also easing their policies, which increases liquidity in the system which is expected to have a positive impact on assets such as gold, stocks, and Bitcoin.
But none of this has had the desired effect, at least not so quickly.
Andrew Kang offers a similar perspective on why crypto is lagging behind all other markets and assets like stocks and gold.
He too believes that lower interest rates in China and even the U.S. are overrated for cryptocurrencies, as they serve as only one of their factors, and an initially indirect one at that, albeit potentially significant at a large scale.
Stocks are much more dependent on this, as a company is valued based on how much money it can make in the future, and for this purpose using a so-called hurdle rate. Large companies often borrow to finance their growth in the corporate debt markets, and how favorable the terms are for them does affect them directly.
But for cryptocurrencies, things work a bit indirectly, and Andrew Kang recalls a very telling moment when we saw an unprecedented rise in interest rates and a 4.5x increase in the Bitcoin price. This only further proves that there is a correlation, but it is not direct, as well as liquidity, which does not necessarily go to the crypto sector in the first place.
He also reminds us that China’s stimulus measures also have a greater impact on the growth of the stock market than cryptocurrencies, as similarly, company stocks benefit more directly from these measures.
However, it’s interesting to look at how people outside of China often think that China’s stimulus measures will greatly contribute to the growth of the crypto sector. At the same in China, many investors are on the contrary switching from cryptocurrency to the stock market to the so-called yuan-denominated stocks on the Shanghai and Schengen stock exchanges.
We have seen this after the announcement of the stimulus, while the Tether exchange rate traded at a 3% discount against the Chinese yuan demonstrating the movement of capital, increasing demand for the yuan, and decreasing demand for Tether because the yuan is needed by investors just to buy A shares. Of course, if China’s incentives were motivating people to move into cryptocurrencies, they would be buying Tether and it would likely be trading at a premium to the RMB.
However, Andrew Kang, like some other investors, is not pessimistic and believes that some people are simply overestimating what is happening, but that Bitcoin will trade in the $50K to $72K range until a significant event occurs that will be a direct catalyst for crypto.
He also adds that the constant rotation of capital and the development of new projects means that there are still coins to accumulate now to profit in a bull market and the market will still be subject to small corrections if the level of leveraged positions is too high and by the way it is quite high now.
What Is Worth Taking Into Consideration Now?
Many investors don’t see this as a bad thing and even on the contrary as an opportunity to buy more within a DC strategy, as clearly demonstrated by Blackrock or MicroStrategy.
There are a few factors for you to keep an eye on as they can make a big difference.
In particular, back to China again, namely the Chinese government recently sold 7,000 ETH that is linked to a fraudulent token layer scheme in 2019, a major scheme in which huge amounts of BTC, ETH, and TRON were stolen.
That said, the Chinese government still has 524,000 ETH and if they start selling them, ETH, which is already struggling right now, could get even worse and that could pull most all altcoins down with it. Yes, we can’t be sure that the China government will start a selloff like Germany did, and even then the market may be stronger than we expect.
Nevertheless, theoretically, they can sell 7000 ETH per month until they sell out all of them or they can sell it all at once within a few days, and one way or another it should have an impact. We are talking about the second most important cryptocurrency, the importance of which has an infrastructural nature for the whole of DeFi and many L2 projects.
The second key factor, of course, is the U.S. elections, the results of which are not long to wait. The new administration can make a fundamental change in crypto regulations, and this will have some significance for all other countries.
For example, Standard Chartered Bank predicts a five-fold growth of Solana in case of Donald Trump’s victory, and maintaining 100,000,000 active addresses from the launch of the spot Solana ETF.
In addition, the launch of the XRP ETF could come much sooner if Trump keeps his promises, including pushing to replace the current head of the SEC Gary Gensler.
Conclusion
How long will this lagging crypto sector continue? Assuming the global economy and all major markets don’t collapse in the next 2-3 months, Bitcoin should probably at least catch up with the rest of the markets and could significantly outperform them in 2025 as the effects of rate hikes and liquidity injections wear off and Bitcoin should take its toll over the longer haul.
Of course, we will all realize when that moment comes by observing the highest FOMO, which will have to force retail investors into cryptocurrency at its peak and altcoins will likely catch up as well.
Also, it’s worth continuing to keep a close eye on Ethereum, when it starts to perform well and preferably against Bitcoin, because if Ethereum starts to rise it should pull the entire altcoin market up with it.
But remember that markets are very sensitive to a huge number of political, economic, and technological factors, many of which are often unexpected and can change the direction of previous dynamics. You should always consider all possible factors, be critical of any information, and make informed decisions knowing the risks involved.
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