Hodlers back Bitcoin amid investor shift to traditional assets

Bitcoin (BTC) has just climbed above $60,000 and was retesting the $62,000 mark at the time of writing on 22 August 2024. However, the top cryptocurrency is being neglected by investors in favour of more traditional stocks and bonds in a risk-averse market climate. But the true believers remain undaunted in the face of macroeconomic turbulence, with the majority hodling on for dear life through thick and thin.

Uncertainty still dominates the market

Many investors remain more inclined to invest in stocks and bonds, reflecting a cautious approach amidst market uncertainty. This trend is evident as Bitcoin futures experience a dip, coinciding with nervousness ahead of the Federal Reserve's upcoming September meeting.

Despite a 21% increase in Bitcoin's value since it dipped below $50,000 on 5 August, the cryptocurrency has struggled to consistently break past the $62,000 mark. Meanwhile, the S&P 500 has rebounded fully, trading just 1% below its all-time high from 16 July.

Bitcoin faces mixed signals: derivative markets show low interest from buyers, while macroeconomic indicators suggest a shift away from cash positions by traders. At the same time, US Treasury yields have dropped, pointing to strong demand for these traditionally safe investments.

Investors appear to be accepting lower returns on fixed-income assets, likely due to growing confidence in the Federal Reserve's ability to manage inflation without triggering a recession. The Fed is expected to lower interest rates on 18 September after keeping them above 4% since December 2022.

Bitcoin vs stocks and bonds

The heightened interest in government bonds, traditionally considered a safe-haven asset, doesn't necessarily reflect confidence in the US dollar's purchasing power. If investors start to view the US government's fiscal health as unsustainable due to rising debt, they may seek refuge in safer assets. Should this occur, Bitcoin investors might face short-term concerns, even as the long-term outlook remains positive.

Similarly, the recent rise in the S&P 500, which might seem counterintuitive, actually suggests a broader investor reluctance to hold cash. This trend could be positive for Bitcoin's future.

Will the yen strike again?

The Japanese yen is experiencing renewed strength against the US dollar, echoing a similar pattern seen earlier in August that led to significant market disruptions, including a decline in cryptocurrencies like Bitcoin. The yen's outperformance, particularly against other major currencies, signals a growing preference for this "anti-risk" currency.

Earlier this month, the rising yen triggered the unwinding of carry trades, i.e., investments funded by cheap yen loans. This carry trade unwind led to reduced risk exposure across global markets, impacting assets such as Bitcoin. Analysts suggest that if the yen continues to strengthen, especially amid upcoming US economic events and interest rate decisions, it could further unsettle global markets and cryptocurrencies.

Whether the unwinding carry trade phenomenon will repeat itself depends heavily on investor sentiment. Traders should keep up to date with economic indicators (employment figures, CPI, interest rates) and watch for signs of weakness that might trigger panic among investors.

Bitcoin volatility breaks ATH levels as it struggles to break $62K

Bitcoin's volatility has surged beyond the levels seen during its all-time high in March, leading traders to believe this could signal the end of the ongoing consolidation phase. For Bitcoin to trigger a significant rally, it needs to maintain a price above $61,000 and successfully retest the $62,000 level, a milestone it hasn't reached since early August.

On 21 August, Bitcoin's Historical Volatility chart increased to 3.42%, surpassing the volatility recorded during its all-time high. While increased volatility doesn't necessarily indicate a bullish trend, it suggests the potential for significant price movements in either direction.

Some traders caution that September might bring cycle lows based on historical trends, while others see the increased volatility as a chance for market engagement and potential profits from price fluctuations. Despite recent price struggles, the put-to-call ratio indicates that many traders are optimistic about Bitcoin's future price movements.

Hodlers keep hodling: 75% of BTC still locked down

Despite a 21% decline from its all-time high, approximately 75% of all Bitcoin has remained unmoved in wallets for over six months, according to data from Glassnode. This indicates that a significant portion of Bitcoin is being held by long-term investors who view it as a store of value, likely in anticipation of future price increases. This holding pattern reduces the supply available for trading, which could drive up prices if demand rises.

However, many short-term Bitcoin holders are currently at a loss, having purchased their Bitcoin at higher prices. This group is at risk of panic selling, which could trigger further price declines, similar to trends observed in previous years. The overall market sentiment remains bearish, with the Crypto Fear & Greed Index showing deep fear levels reminiscent of late 2022. There's plenty to be said for the long-term strategy. Even in its current slump, Bitcoin has more than quintupled in price over the last five years.

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