Bitcoin price recovery driven by growing US financial concerns – Cointelegraph

Bitcoin (BTC) has risen 2.4% since retesting the $59,900 support level on October 3, despite facing initial resistance at $62,000. The Oct. 4 rally was driven primarily by macroeconomic factors, including U.S. employment data, expectations for Japan's economic stimulus, and growing concerns about the U.S. financial system.

In the United States, the economy is strong, but the fiscal situation is deteriorating. Interestingly, the US dollar rose to a 50-day high against other major currencies such as the euro, British pound, and Japanese yen.

Historically, the relationship between the US Dollar Index (DXY) and Bitcoin has been inversely related. But this latest move seems to break that pattern.

One possible explanation for this anomaly is the “milkshake theory,” which posits that the U.S. dollar absorbs excess global liquidity by offering higher interest rates and exhibiting stronger economic fundamentals. . As a result, the dollar has strengthened even as the U.S. attracts capital from other countries and investors turn to alternative assets such as Bitcoin.

Better-than-expected U.S. economic data further accelerated this trend. U.S. employment statistics released on October 4 showed that the number of employed people increased by 254,000 in September, exceeding economists' expectations. These numbers put the US economy ahead of other regions, thereby reinforcing the strength of the US dollar.

At the same time, concerns about global economic growth are growing following signals of possible economic stimulus from Japan. Japanese Prime Minister Shigeru Ishiba has reportedly instructed his cabinet to draft an economic relief package. packageaccording to Reuters.

The plan is expected to include financial support for low-income households and subsidies for local governments, marking a departure from Japan's previous monetary policy, which has suffered from deflation for the past 30 years.

Oil prices have risen 9% in a week due to the escalating conflict in the Middle East, raising global inflation risks. The consumer price index is likely to rise due to higher transportation and logistics costs. If these costs continue to rise, governments could be forced to inject more liquidity into the market to prevent an economic downturn.

In this environment, Bitcoin could benefit from expectations of increased fiat supply. But gains could be limited by a “flight to quality” phenomenon, as investors wary of a potential recession seek refuge in cash holdings and companies well-positioned to weather the slowdown.

Bitcoin and the stock market act as hedging instruments

While the S&P 500 is not traditionally considered a risk-off asset, given the high profit margins and strong balance sheets of major technology companies such as Apple, Google, and Microsoft, these stocks compare favorably with real estate and corporates. is considered a safer option. debt. This is especially true as investors expect further increases in U.S. Treasury yields in the near future.

said billionaire investor Stanley Druckenmiller. concerns According to a Bloomberg article, the Federal Reserve is “deadlocked” on further rate cuts given the current strength of the U.S. economy. Additionally, Druckenmiller reportedly revealed that 15% to 20% of his portfolio is allocated to the following bets: rising US Treasury yields reported by MarketWatch.

In this scenario, purchasing fixed income products becomes less attractive for investors, supporting the stock market and alternative assets such as Bitcoin. More importantly, the sharp increase in the use of repurchase agreements by the Federal Reserve has heightened concerns about U.S. financial markets.

These agreements allow eligible financial institutions to trade bonds to raise emergency cash, acting as a safety valve that avoids direct market intervention while keeping interest rates in check. But analysts cited by Reuters said the increase in repurchase contracts was due to the Fed limited There is room to continue adding liquidity.

Therefore, Bitcoin's strong performance on October 4th can be mainly attributed to the macroeconomic situation, which increases concerns about the financial situation of the United States.