Cryptocurrency market experienced narrow fluctuations on Tuesday. The early trading price of Bitcoin was close to $63,000, but it dropped after comments from Powell and hit a low of $61,730 in the afternoon. It has since rebounded to $61,901, with a decrease of nearly 2% in the past 24 hours.
Most altcoins followed Bitcoin’s decline, with more tokens in the top 200 by market capitalization experiencing drops than gains.
BinaryX (BNX) performed well, rising 21.4% with a trading price of $0.9755. Arcblock (ABT) rose by 9.8%, and Helium (HNT) rose by 6.5%. Pendle (PENDLE) experienced the largest drop, falling by 14.1%, followed by ether.fi (ETHFI) with a 10.3% decrease and Aave (AAVE) with an 8.3% decrease.
The overall market capitalization of cryptocurrencies is currently $2.29 trillion, with Bitcoin’s market dominance at 53.2%.
In the US stock market, the S&P, Dow Jones, and Nasdaq indexes all rose at the close, with increases of 0.62%, 0.41%, and 0.84% respectively. Both the S&P and Nasdaq indexes reached new all-time highs at the close.
Fed and employment data driving the market
The latest data from the US Bureau of Labor Statistics shows that the number of job vacancies in the United States at the end of May was 8.14 million, an increase from 7.92 million in April. Market observers are currently awaiting the release of the June employment report on Friday, hoping that it will provide more evidence of a cooling labor market to support interest rate cuts.
Earlier in the day, Powell stated that he was encouraged by the cooling of inflation. The inflation data for April and May indicated that the Fed is moving towards a tightening path. However, he refused to comment on the timing of the first rate cut, reiterating the need for more progress evidence before reducing rates.
“We have made great progress. We just want to understand if the level we see reflects the actual situation of underlying inflation,” said Powell.
ETC Group’s Head of Research, André Dragosch, commented, “Due to the fact that US employment data usually includes lagging indicators, with only a few exceptions such as initial jobless claims, we expect US employment data to deteriorate in the coming months, just as patterns observed in housing and other leading indicators suggest. More importantly, there is increasing evidence that recent employment data should be treated with caution.”
He stated, “Despite the higher-than-expected nonfarm payroll employment number for May, the ‘fine print’ of the employment report shows a clear weakening of the US labor market.”
Dragosch emphasized some recent “unexpected negative growth” in the labor market and said that these “contribute to further repricing of expectations for global benign growth, as market participants increasingly consider the possibility of a US economic recession.”
Meanwhile, major US stock indexes reached new highs in June. However, this occurred as market breadth weakened, as the performance of the bottom 490 stocks is usually not as good as the top 10 stocks in the S&P 500 index. Therefore, the polarization in the traditional stock market also indicates an increase in the risks of a recession and adjustment.
Dragosch stated, “The risk of Bitcoin and other crypto assets lies in the fact that, first, major stock indexes such as the S&P 500 still show relatively high correlation with major crypto assets. Second, global growth expectations remain the main macro factor driving Bitcoin’s performance.”
He pointed out that both the S&P 500 index and Bitcoin are currently dominated by global growth expectations, which also explains the high correlation between the two markets. The liquidity of US government bonds is a “potential systemic risk that could support Bitcoin and crypto assets,” and he noted that the available liquidity is currently “worse than during the COVID-19 pandemic in 2020,” which could mean increased bond volatility and the need for the Fed to intervene in the bond market (i.e., quantitative easing), which may also require rate cuts like in 2019.
If the Fed restarts a loose monetary policy and the US dollar weakens, it will benefit Bitcoin and crypto assets. Major central banks around the world have already lowered interest rates this year, such as the Bank of Canada, the European Central Bank, or the Swiss National Bank. Therefore, the liquidity situation seems to have started to change.
Dragosch stated, “We believe that the potential US economic recession and the increasing risk of a malfunction in the US government bond market are the main catalysts for the Fed to eventually change its policy this year. Unless global risk appetite rises again, our basic forecast is still short-term consolidation until the positive impact of the halving becomes apparent around August 2024. That being said, due to the recent adjustments, valuations have become more attractive, and BTC is now close to ‘fair value.'”
$65,000 is a resistance level
Analysts from Blockware Intelligence stated in their latest newsletter, “In the short term, we should expect some resistance around the $65,000 level, as short-term market speculators may seek to exit positions at breakeven levels. Last summer, when BTC lost support from short-term holders, the price consolidated for two months before finally breaking through.”
Independent analyst Ali Martinez also mentioned this on the X platform, stating that based on the measure of market value versus actual value, BTC price may encounter resistance above $65,000.
Martinez stated that breaking this level could pave the way for Bitcoin to rise to $78,700.
Meanwhile, Thomas Fahrer, the founder of cryptocurrency company Apollo, is even more optimistic about Bitcoin breaking $65,000. In a post on July 2, he claimed, “Short positions of $940 million in Bitcoin will be liquidated at $65,000. The first rule of Bitcoin is not to short it, as funds will flow in and short sellers will be punished.”
