Bitcoin’s end-of-year outlook: a complex landscape

As we approach the last quarter of 2024, the cryptocurrency market remains volatile, influenced by a myriad of factors. This analysis delves into the key drivers shaping Bitcoin's trajectory, examining recent market trends, macroeconomic indicators, and regulatory developments.

The Bitcoin price has been under pressure in recent weeks due to several factors. The Bank of Japan reiterated the possibility of continuing to raise interest rates, BTC ETFs have been experiencing net outflows, institutions like Ceffu and Fidelity have been transferring large amounts of BTC on-chain, data on unemployment claims and the unemployment rate was released recently, and the mid-month interest rate decision is heightening market risk aversion, with panic spreading.

ETF Outflows

Bitcoin ETFs have seen net outflows for six consecutive business days, with a record single-day outflow in four months occurring on Tuesday September 3rd. Over the past week, BTC ETFs have lost about $600 million, indicating growing caution and pessimism in the market. Since the launch of BTC ETFs, retail investors' enthusiasm for BTC has gradually waned. Additionally, on-chain data shows that institutions like Ceffu and Fidelity have transferred large amounts of BTC assets, which weakens market support and may trigger panic selling among retail investors, further increasing market volatility. If this trend continues, BTC prices may face further downward pressure.

Breakdown of the US Spot Bitcoin ETF flows (USDm) / Source: CVJ.CH Bitcoin ETF Flows Overview

Macroeconomic Indicators

On the macroeconomic side, according to market data, the yield on 2-year U.S. Treasury bonds dropped to 3.76% at the close on September 4, reflecting heightened expectations that the Federal Reserve might lower interest rates on September 18. Short-term bond yields are more closely tied to the Fed's benchmark interest rate, and the probability of a 50-basis-point rate cut is now above 40%. It is expected that the remaining three rate cuts this year will collectively lower rates by at least 110 basis points.

In the short term, the rate cut decision could boost the prices of risk assets, but in the long term, there is pessimism about whether an economic recession will occur. Historically, when the U.S. Treasury yield curve inverts, there are two possible outcomes: an economic recession or a Fed rate cut to counter the slowdown. However, due to the pandemic, many U.S. economic indicators have become distorted, making it uncertain whether this inversion will lead to a recession. Additionally, potential exchange rate fluctuations in Japan may lead to changes in the global interest rate environment, further complicating the short- and medium-term outlook for the global economy.

Election-related factors

From the U.S. Elections side, during periods of uncertainty in fiscal policy, international trade relations, and monetary policy, the market tends to be more sensitive. Historically, certain remarks and measures during election periods have stimulated economic growth, which is generally favorable to the market, especially for risk assets. Trump has repeatedly expressed support for cryptocurrencies in public forums, and his pro-crypto statements during the high-profile election season could further boost BTC's price. However, the long-term impact will depend on the overall market environment and policy direction.

Minds

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Minds

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Potential Opportunities and Challenges

In the short term, due to ETF outflows, institutional selling, and the mid-month interest rate decision, investors are showing clear risk aversion, putting short-term pressure on BTC prices. Despite these challenges, there are potential opportunities for Bitcoin in the mid-to-long term. If the Fed's rate cuts successfully stimulate economic growth, the recent downturn could create potential for quantitative easing and increased momentum toward the year-end, with the U.S. election providing additional opportunities. In the long term, with the approval of BTC and ETH spot ETFs, crypto assets are gradually gaining recognition from mainstream capital. The crypto market remains in a stage of robust growth, and its future development remains promising.

Overall, by the end of the year, BTC prices may experience high volatility, with the market possibly waiting for a "final drop." Institutions like Standard Chartered and Coinfund are optimistic about BTC’s performance in the fourth quarter. Investors should brace for the short-term downside risks due to policy uncertainties while keeping some assets in reserve to seize mid-term opportunities from rate cuts and the election. Glassnode data shows that long-term BTC holders continue to increase, suggesting that despite any short-term declines, long-term holders are accumulating more, and the future of the crypto market and BTC’s price trajectory remains promising.