Bullish Drivers Remain In Play Despite Germany\'s Bitcoin Sales and Mt. Gox Reimbursements

Macro factors and persistent "risk-on" in traditional markets suggest a promising outlook after BTC-specific supply overhangs run dry.

Bitcoin (BTC) price has dropped over 17% to $56,600 in four weeks, causing a rout in meme coins, digital assets and other risky corners of the crypto market, according to CoinDesk data.

However, macro factors and persistent “risk-on” in traditional markets suggest a promising outlook after BTC-specific supply overhangs run dry.

G-7 in the expansion phase

Investors tend to deploy money in risky, growth-sensitive assets like bitcoin and stocks during periods of global economic expansion.

The G-7, an informal group of advanced economies, is currently experiencing an expansionary phase of the business cycle amid elevated interest rates, according to the Organization for Economic Co-operation and Development's (OECD) composite leading indicator.

The indicator, gauging the short-term economic outlook for a group of major nations, has crossed above 100 and is rising, indicating above-trend growth and acceleration, according to TS Lombard.

CPI to boost Fed's confidence

The U.S. Bureau of Labor Statistics' report on the June consumer price index (CPI), due Thursday, is expected to show that the cost of living rose 3.1% over the year, slowing from May's 3.3% annual increase, according to a survey of economists by The Wall Street Journal.

The expected slowdown would imply continued progress toward the Fed’s 2% target, strengthening the case for the central bank to begin reducing the benchmark borrowing costs this year.

Renewed rate cuts could further catalyze demand for risk assets, including bitcoin. Since early this year, weaker-than-expected CPI prints have galvanized inflows into the spot bitcoin ETFs, boosting the cryptocurrency's market value.

"We forecast headline CPI rose by 0.1% m/m owing in part to another drop in energy prices. This would result in the y/y rate falling a tenth to 3.2% and the NSA index printing at 314.770. Meanwhile, we expect core CPI increased by 0.2% m/m," economists at BofA said in a July 5 note to clients.

"Should the CPI report print in line with our expectations, we would maintain our expectations for the Fed to start its cutting cycle in December," economists added, saying a 0.2% m/m core CPI would lift the odds of an early rate cut.

Record tech optimism on Wall Street

The path of least resistance for bitcoin is on the higher side as Wall Street remains entrenched in a wave of tech optimism, as evidenced by the new record highs in the ratio between its tech-heavy Nasdaq index (NDX) and the broader S&P 500 (SPX).

Since early 2017, bitcoin has moved in lockstep with the NDX-to-SPX ratio, staging sharp rallies during periods of relative outperformance of technology stocks.

Besides, social media's concerns about a potential meltdown in the U.S. stocks, adding to downside pressures in other risk assets, may be unfounded as the equity market does not appear to be in a bubble.

"Whenever U.S. margin debt increases, we hear calls of a bubble forming in the U.S. equity markets. However, unlike in previous bubble episodes (including 2020-21), margin debt is growing less than the equity market capitalization. Rather than being a driver of equity performance, it is likely a consequence. This is unsurprising given the current high level of interest rates, which is not conducive to leverage increases, TS Lombard said in the July month's note to clients.

"Another indication that the U.S. equity market is not in a bubble territory is investor positioning, which is close to neutral in both the S&P 500 and Nasdaq futures," Lombard added.

Gold has also held steady in recent, a sign the macro picture is supportive of assets with alternative investment appeal like bitcoin.

Lastly, past data show months after reward halving are bullish and characterized by double-digit price corrections. The Bitcoin blockchain underwent its fourth halving in April this year.

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