Bitcoin headwinds persist but could there be light soon?

GB Market Commentary 27/07/2022

by Nick Heale

It has been a challenging week so far for Bitcoin and cryptocurrencies generally, reversing what had been a decent month until Sunday night when the Asian trading session sparked a sell off.

The obvious culprit is macro headwinds which are again to the fore with an expected interest rate hike in the US of 75bps later today and a slew of US earnings in large bellwethers such Walmart and General Motors which have been underwhelming up to the time of writing. Treasury Secretary Janet Yellen attempted to downplay a downturn is inevitable as GDP news on Thursday will likely conclude the US is technically in recession.

With all this negative macro-economic news coupled with poor forward expectations in the stock market is it too simplistic a view to assume Bitcoin should come down as well? Whilst Bitcoin’s performance as well as the wider cryptocurrency market has generally tracked “risk on” assets such as tech stocks this should not necessarily be the case.

Bitcoin investors will be considering when markets could start pricing a more dovish tone from the Fed after the recent interest rate rises start to take effect. This could ultimately reverse what has been a steady decline in the Bitcoin price since the market peaked in November last year.

It will be a delicate decision to predict when this reversal may kick in, perhaps the end of 2022 to early 2023 or sooner? The complex mix of economic factors will make market timing of any reversal or indeed decoupling from wider risk asset performance a difficult call for investors!