July has been quite an interesting month for the crypto market. Coin prices have seen moderate jumps, thanks in no small part to improved macroeconomic factors and a massive win for Ripple Labs in its securities fraud case. However, with the market now looking to stabilize, it is also important to remember that several factors from the traditional economy could still very much affect a possible rally – or perhaps even catalyze it.
The Strange Case Of 2023
If there’s anything that 2023 has proved, it’s that market conditions change quickly and without giving much warning. Many believed that the bear market that hit in 2022 would continue in 2023, marking a continuation of trends. However, coin prices have done rather well to stabilize this year, proving that there is still a lot of demand and appeal for cryptocurrencies across the board.
Earlier this month, Michael Burry – the famous investor who made a fortune back in 2008 – hinted that the U.S. economy could hit a recession in 2023, with the rate cuts from the Federal Reserve and the Consumer Price Index (CPI) all pointing to a weaker economy by the end of the year. As he explained, this would only cause inflation to rise even more.
However, this year has proven to be quite resilient. Inflation for June hit 3% – the lowest it’s been in about two years. And, while there is still some concern about prices, public confidence in the Fed’s ability to control headline inflation remains relatively high.
In a recent newsletter, Lyn Alden – an independent crypto and macroeconomic analyst – explored the issue of inflation, explaining that persistent inflation might still happen.
In her newsletter, Lyn examined current inflationary trends and contrasted them to the 1940s and 1970s. From this, she opined that markets would most likely experience continued upsurges until an official level of recession is hit.
Big Tech’s Rise Fuels Equities
Another major economic point has been the general resilience of tech stocks. Despite the Fed’s constant battle with inflation, the first half of 2023 was generally bullish for equities, with the rally now even going into July.
Although bonds are selling off, risky assets such as tech stocks have also seen consistent surges. This rally has been mainly spearheaded by a handful of stocks – including Apple, Google, Amazon, and Nvidia.
Just seven stocks make up 55% of the NASDAQ 100 and 27% of the S&P 500
The distribution has become so lopsided that the NASDAQ will be rebalancing to give these megacaps less weight.
Source: @GoldmanSachs pic.twitter.com/k1xM1wmL2S
— Markets & Mayhem (@Mayhem4Markets) July 13, 2023
With the equities on these stocks making up a disproportionate weight of the entire NASDAQ index, there is hope that a rise in their values could propel the entire index even further. And, there is reason to believe that a rise could be on the way.
Apple saw a massive boost to its share price with the announcement of the Vision Pro and new products earlier this year. And, with the company set to launch another flagship device soon, investors are wondering what the $3-trillion-dollar company could have in store for them.
As for Nvidia, the company will surely get a boost from the increased demand for chips and AI components. Other stocks like Google, Meta, and more are also expected to see surges as they incorporate artificial intelligence into their operations.
What This Means For Bitcoin
As we explained, the rally in tech stocks and bonds is primarily due to the growth in AI adoption. And, as Alden herself wrote last year:
“But then some things began to change at the start of Q4 2022. The U.S. Treasury began dumping liquidity back into the market and offsetting the Fed’s quantitative tightening, and the dollar index declined. The S&P 500 found a bottom and began stabilizing. The liquidity in sovereign bond markets began easing. Various liquidity-driven assets like bitcoin turned back up.”
Pantera Capital – a crypto research and analytics firm – explained in a report from earlier this month that real interest rates have so far been a different story compared to the 70s.
“The traditional markets may struggle — and blockchain might be a safe haven,” in part because “the Fed needs to continue to raise rates,” given that real rates remain at negative 0.35%, according to the report. The report also concludes this, “There’s still tons of risk in bonds.”
The company’s report added that while most other asset classes tend to have specific sensitivities to interest rates, the same can’t necessarily be said about crypto. The collapse of centralized crypto companies in 2022 led to the correlation of Bitcoin with equities, as more investors were more concerned about the asset’s fundamentals. However, with the hype surrounding crypto returning, that correlation has evaporated.
It is worth noting that risky assets like crypto appear to have a bid under them for now. However, we could see this trend being reversed soon.
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