Stronger-than-expected US November Retail Sales data released earlier on Thursday triggered a sudden near-$1,500 drop in the Bitcoin (BTC) price from just under $43,000 to around $41,500.
Seemingly, the data, which showed an unexpected MoM leap in headline and core retail sales last month, triggered some algorithmic selling, perhaps a reflection of fears that the strong data might result in the market’s paring back on recent bets that the Fed will start cutting interest rates next year.
But the BTC price has since recovered rapidly back to the north of the $43,000 level, with the broader market not having interpreted the latest US data in this way whatsoever.
On the contrary, US stock prices continue to pump on Thursday while US government bond yields and the US Dollar Index (DXY) continue to plunge, as investors continue to price in anticipation that a Fed rate cutting cycle is set to start within a few months of the start of 2024.
The Fed announced monetary policy on Wednesday, keeping interest rates unchanged at 5.25-5.5% as expected.
But the US central bank’s updated economic and interest rate projections forecast continued easing in inflation next year and three interest rate cuts, hence the recent moves being seen across the macro landscape.
The S&P 500 just hit highs for the year in the 4,700s and is only a whisker off of early 2022’s record highs, the 10-year US government bond yield is down nearly 30 bps in two days and just hit its lowest levels since July under 4.0% and the DXY just tumbled to multi-month lows under 102.
Moves in traditional asset classes reflect a market that is betting on easier monetary policy from the Fed, which means lower interest rates and more liquidity, a combination that has historically been very bullish for Bitcoin.
That’s why Bitcoin has been able to mount such a fast recovery from intra-day lows.
Here’s Why BTC Could Soon Hit Fresh Yearly Highs
Despite the rapid intra-day turnaround, the BTC price is still more than 3% below the yearly highs of near-$45,000 it hit earlier this month.
Various BTC future market indicators, such as the open-interest weighted funding rate paid by traders taking out leveraged positions, showed that in the previous run higher to yearly highs, leverage in the market had become excessive (on a short-term basis), therefore it wasn’t too surprising to see leverage wash out that brought prices back lower again at the start of this week.
But Bitcoin’s fundamentals remain strongly in favor of fresh upside.
The aforementioned macro backdrop is a strong tailwind right now, while Bitcoin is also likely to continue benefitting from themes such as optimism about institutional adoption with spot Bitcoin ETFs coming in early 2024, the early 2024 halving of the BTC issuance rate and the potential for the election of a more pro-Bitcoin president in the US next year.
Chart analysis is also sending strong bullish signals – recent the BTC price found strong support at its 21DMA and the psychologically important $40,000 level, a sign that dip-buying appetite in the market remains strong.
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