Bitcoin Investors Brace for Another Quarter of Volatility
Patient bitcoin investors may need to remain composed for at least another quarter as the Federal Reserve’s outlook on interest rate policy dampens what could have been a stronger month for the cryptocurrency. Despite a decent but difficult year so far for bitcoin, with a 60% increase in value in the first quarter, the subsequent months have seen little growth. In fact, bitcoin is down about 5% since April 1, and positive developments in the industry have failed to sustain its momentum.
Looking ahead to the final quarter of the year, it is likely that bitcoin will continue to experience volatility. While there is room for some upside, it may be limited. Greg Magadini, director of derivatives at crypto data provider Amberdata, stated, “If we have positive ETF developments, I could see us going back to the top of the range that we saw this year.” A bitcoin ETF getting approval is seen as a crucial event that would push bitcoin to new highs and bring liquidity back into the crypto market. However, the current macroeconomic backdrop, including the hawkish stance of the Federal Reserve, may prevent bitcoin from reaching new highs this year.
With the Federal Reserve signaling a pause on rate hikes but indicating the potential for higher rates for an extended period, some analysts speculate that bitcoin could break below its key support level of $25,000 when rates surge. This could trigger a “violent” rotation back into risk assets, according to chart analyst Rob Ginsberg.
Despite September typically being bitcoin’s worst month of the year, the cryptocurrency is on track to end the month with a gain of over 3%. If achieved, this would mark its first positive month in the third quarter. However, bitcoin is still expected to experience an 11% decline in the third quarter overall, making it the sixth loss in the third quarter in the past 11 years.
Bitcoin historically performs well in October, with gains in eight out of the last 10 years, and in the fourth quarter, with gains in six out of the last 10 years. However, the influence of interest rates and monetary policy, which were significant drivers in the past, have been overshadowed by industry-specific catalysts this year. As rates potentially rise in the fourth quarter, the focus on protecting portfolios may weigh on trading volumes, liquidity, and speculation within the crypto industry.
While bitcoin is considered a risky investment compared to stocks and bonds for traditional-minded investors, it serves as a relatively stable store of value and a hedge against the traditional financial system for crypto-focused investors. The shift from speculative investments to quality investments may benefit bitcoin in the long run.
The appetite for quality investments will depend on interest rates, which are expected to stay high. Bitcoin may face technical struggles but could still attract money flow due to its reputation for quality and stability. The fourth quarter will likely be a tale of how the appetite for quality assets collides with the appetite for speculation in the crypto market.
In conclusion, patient bitcoin investors should prepare for another quarter of volatility. While there may be limited upside, the focus on quality investments and the potential for positive ETF developments could contribute to bitcoin’s performance in the remaining months of the year. However, the influence of interest rates and the Fed’s hawkish stance may hinder bitcoin’s ability to reach new highs in 2023.
