Bitcoin is showing similarities with gold and JPY, and the expected Fed rate cut may lay solid ground for BTC
As the global economic mood sours, the continuation of the US economic expansion is questionable, and global trade tensions remained high, markets are expected the FOMC to cut the rates by 25 basis points next week. St. Louis Fed President James Bullard told Bloomberg that, “I’d like to go 25 basis points at the upcoming meeting,”, New York Fed President John Williams went even further, calling for a more aggressive policy move. According to CME’s FedWatch, US rates futures implied traders positioned for an 80% chance that the FOMC may lower its rate by a quarter-point at its July policy meeting.
(Source: CME Group)
In the background of a weaker global economic growth, gold has been back in the spotlight. The precious metal was one of the worst-performing asset classes last year, but it managed to make a comeback in May 2019, topped $1440 level just this month.
The latest CFTC’s weekly Commitments of Traders report shows that, the net positions for “non-commercial” (speculative) traders in US gold futures markets still near an all-time high, implying market sentiment remains positive for gold.
Traditionally, lower interest rates reduce the opportunity cost of holding non-yielding gold and pressure the dollar. If the July rate cut is materialized and the expectation of more rate cuts remained intact, this could help gold bulls to gain more solid ground, extending the momentum of the bullion rally.
CFTC’s Commitments of Traders Report (Source: CFTC; investing.com)
Gold and BTC have continued to show high correlation during their recent rallies, we haven’t seen such a high degree of synchronization since 2016. The following chart shows that gold and BTC were mostly in an inverse correlation in Q4 last year to H1 of this year, but their relationship started to change in late June.
Gold and bitcoin (Source: www.tradingview.com)
USDJPY and Bitcoin (Source: www.tradingview.com)
The Fed July meeting is certainly important for all market participants. The road to rate hike seems to come to an end, at least in the near term. The case of medium to long term bearish of USD remains strong, safe-haven assets such as gold and JPY are expected to continue on high demand due to unresolved trade tensions and economic uncertainties. Referencing the correlations with gold and USDJPY, BTC could also benefit from this global risk-building environment.
More traditional market players have put BTC under their radar, as the tie between the crypto world and traditional financial markets is getting closer every day. The medium to long term BTC bullish case remains solid.
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