There is a general sense of optimism in the market regarding the potential surge of Bitcoin [BTC] in the fourth quarter of 2024, especially with the recent actions by the U.S. Federal Reserve to cut rates and the stimulus package introduced by China.
These developments have been seen as overall positive for the global liquidity environment and risk assets, including BTC. The significant 50 bps cut in Fed rates in September was considered the driving force behind BTC’s rise to $66K.
An Alternative Perspective on Fed Rate Reductions
Andrew Kang, a co-founder of the cryptocurrency investment company Mechanism Capital, has adopted a cautious and opposing view.
He expressed his belief that the influence of the Fed rate cuts and China’s policies might have been exaggerated. Kang stated,
“I think the crypto market participants have placed too much importance on the effects of the Fed rate cuts and China’s stimulus.”
Kang argued that the Fed rates are just one piece of the puzzle in the global liquidity landscape. He also highlighted that global liquidity is just one of the many factors that impact cryptocurrency prices.
To reinforce his argument, Kang pointed to BTC’s remarkable surge since 2023, a period when Fed rates were at their peak.
“It appears illogical to witness BTC’s surge by 4.5 times during a phase of soaring rates – indicating little correlation between rates and BTC. Therefore, it is unrealistic to expect a strong inverse relationship to emerge as soon as rates begin to decline.”
While acknowledging the significance of Fed rates, Kang believed that the market had placed undue emphasis on this aspect.
SwissOne Capital, a firm focused on cryptocurrencies, echoed this sentiment.
The company suggested that during the Fed rate reduction cycles, altcoins are likely to benefit more than BTC, as BTC’s dominance typically decreases during these periods.
“During the previous round of rate cuts that commenced in the middle of 2019, Bitcoin’s dominance dropped to 38%.”
Impact of China’s Stimulus
Kang also argued that China’s stimulus measures would have a more favorable impact on stocks rather than cryptocurrencies. He pointed to recent discrepancies in trading values between USDT and the Chinese Yuan (CNY).
“Observations in China suggest a shift from crypto to A shares. Data confirms this trend – since the announcement of the Chinese stimulus, USDT has been trading at a discount to CNY, currently standing at 3%.”
Although the surge in Chinese stocks saw a temporary halt, market analysts believed that an additional stimulus from the Chinese government could reignite the upward trend.
If this occurs, Kang predicted that crypto investors may redirect their investments to stocks.
As a result, he anticipated that BTC could remain within the range of $50K to $72K until a significant event triggers a substantial movement in the crypto market.
“This is not a pessimistic view; rather, I believe some individuals might be getting ahead of themselves. I anticipate that we will stay within the $50k-$72k range unless there is a compelling catalyst for the crypto market.”
For now, BTC continues to hover below the 200-day Moving Average (MA), indicating a lack of definitive market structure shift towards a bullish trend.