By the weekend, Bitcoin (BTC) was almost struggling back above the $24,000 mark. At USD 23,839, the cryptocurrency is up 4.6 percent on a daily basis.
The fact that BTC is listed behind a green sign is surprising given the tense economic situation. Eventually, the US economy officially slides into a technical recession. Economic data released yesterday, Thursday, July 28, showed negative growth of 0.9 percent for the second quarter, marking two consecutive quarters of contraction in the world’s largest economy.
The central bank is responding to the weak economy with rising interest rates in order to get the galloping inflation under control. Most recently, the Fed raised the key interest rate by 0.75 percent, putting the key monetary policy rate at 2.25 to 2.5 percent. Both phenomena alone would be enough to cloud the mood on the capital markets.
Why is Bitcoin still rising?
The reason for the positive mood on the crypto market is likely to be the surprisingly moderate increase in the US key interest rate of 0.75 percent. Some market observers had even expected 1.5 percent in advance. Despite this, Fed Chair Jerome Powell is sticking to his doctrine of raising interest rates to 3.5 percent by the end of the year.
The short-term recovery rally is at least a good sign for the crypto market. Market sentiment is also turning northwards with prices. The Bitcoin Fear and Greed Index climbed to 39 points this Friday. For comparison: in mid-July the sentiment index was only 16 points.
But it should still be tempted for euphoria. Even if the global capital markets, which also shape the price development of Bitcoin and Co., are increasingly pricing in the overall economic situation, the current growth is more than fragile. Uncertainty in this country is fueled by the heavily indebted countries of southern Europe, which are increasingly endangering monetary union. Italy’s debt level is currently around 150 percent of economic output.
This and the ECB’s reaction to the impending currency crisis are factors of uncertainty that can have a negative impact on Bitcoin in the medium term. Because both a recession and rising inflation usually lead to the withdrawal of investors. In times of crisis, “cash is king”. For analyst and economist Jan Wüstenfeld, Bitcoin investors are not off the hook yet. In his youngest Bitcoin Market Report he writes:
While I can’t rule out bottoming out, I don’t think Bitcoin is out of the woods. I think that the financial market will remain bearish for the foreseeable future and that we may see new lows for bitcoin price.
Jan Wustenfeld
And further: “I’m bullish on bitcoin in the long term, but I think it’s important to keep expectations contained.”
You can read in the current Friday commentary why demographic change is also bullish for Bitcoin in the long term.
For specific price targets, we recommend our Bitcoin analysis.
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