Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by Luffy, Foresight News
I am often asked: Why has Bitcoin been trading sideways since March of this year? My answer is: Because the market hates uncertainty.
After all, the long-term outlook for Bitcoin is very positive. We have record ETF inflows, soaring institutional adoption, the aftermath of the Bitcoin halving, an improving political and regulatory environment, and a runaway federal deficit. It all points to a breakout moment for Bitcoin.
Yet, right now, the price of Bitcoin is not moving at all, and it has been like this for months. I think the reason is that the market is seeing uncertainty in the short term.
So, what are the uncertainties?
US election: Who will win? What will the Harris campaign do on cryptocurrencies?
Mt. Gox and the U.S. Government Selloff: After years of bankruptcy proceedings, Mt. Gox recently released billions of dollars in Bitcoin to its creditors. When will some of the largest holders cash out?
SEC Enforcement Actions: As the SEC's fiscal year draws to a close in September, what enforcement actions will it take?
Fed rate cuts: When will the Fed start cutting rates and by how much?
Faced with these major short-term issues, investors will be hesitant and wait for the dust to settle before entering the market.
That’s why I reacted so strongly to Fed Chairman Jerome Powell’s press conference last week in Jackson Hole, Wyoming. One thing I like about Jerome Powell is that he is articulate and by far the best communicator I’ve ever had as a Fed Chairman in my career.
As Powell said, "Now is the time to adjust policy. Rate cuts are inevitable, and the specific timing and pace will depend on factors such as future data, changing market outlooks and risks."
The era of "high interest rates for a long time" is over, and we have entered a rate cut cycle in 2024-2025. The Chicago Mercantile Exchange (CME) expects a 100% chance of a rate cut at the September meeting, with interest rates falling by 200 basis points (2%) over the next year.
Historically, interest rate cuts will drive up risk assets such as Bitcoin for many reasons. From an academic perspective, interest rate cuts can "reduce the discount factor used to calculate the long-term value of assets," thereby pushing up asset prices. More importantly, interest rate cuts inject new funds into the market.
One of the oldest maxims in the investment world is "Don't fight the Fed." This phrase is often used to warn investors not to buy stocks and other risky assets when the Fed is raising interest rates. The reverse is also true, when interest rates fall, investors should decisively start risky assets.
I guess Powell's statement fired the starting gun for a new bull run in Bitcoin. I don't think it will go straight up, and there is still some uncertainty. But I do believe a new era has begun, and as the clouds of uncertainty surrounding the election and other markets dissipate, a new bull run will gradually become clear.
Powell’s statement gave people their first sense that the veil of uncertainty about Bitcoin was being lifted, which was a good start.
