It has not always been easy to point out clear trends in financial market sentiment throughout 2023. However, both Bitcoin and Gold can be considered as investment assets to look upon as star performers. Gold for example is up by close to 10% year-to-date, while Bitcoin at one point appeared as if it would attempt to double in value with price. Bitcoin jumped from $16,500 at the start of January to just above $30,000 by the middle of April.
Elsewhere, trading sentiment has generally been choppy in other asset classes. For example, global markets have been weighed down by concerns over the ongoing global economic slowdown. Also that that the drastically higher interest rate environment worldwide might even catch the banking sector by surprise. We have encountered some indecision across global foreign exchange, although the Dollar has dipped in value generally. Yet, there is some doubt in conviction over how much further the Dollar can gradually decline. This creates uncertainty over where to expect major FX pairs, such as the EURUSD and GBPUSD to fluctuate.
In comparison, the trend in Bitcoin and Gold as mentioned above has been a lot clearer.
Bitcoin dips after brief $30,000 attempt
The surge in Bitcoin price has particularly surprised. Especially after such a horrific second half of 2022, where sentiment for Cryptocurrency as a sector as well as an asset class collapsed like a house of cards. The pain and suffering were so widespread that it became inevitable to ask the question regarding whether buyers would have the courage to ever return to the market. Yet, the price increase of above 60% for Bitcoin year-to-date shows that there is still resilience and enthusiasm for this asset.
There will of course be some debate regarding what exactly encouraged the surge in Bitcoin price over the last few months. It could have been as simple as a price recovery. The more exciting story to tell is that global banking fears and long-standing memories of what transpired during the 2007 global financial crisis inspired buying interest in an unconventional asset class. Such as Bitcoin.
However, time has so far shown that the events of Credit Suisse reflected more of a confidence crisis rather than beginnings of a new banking sector crash. As initial fears over potential contagion into other asset classes cooled, we have noticed somewhat of a pullback in Bitcoin buying momentum.
I would personally view the recent price action in Bitcoin as a pullback rather than expecting Bitcoin to accelerate substantially to the downside from here. Of course, volatility in Cryptocurrencies is unforeseen by nature. Investors would need to manage risk accordingly.
The ability of Bitcoin to re-approach $30,000 was however important from a historical standpoint. The lack of buyers ability to maintain price action at this level is also what has likely encouraged the pullback since.
In my view we are likely to now see somewhat of a range between $25,000 to $30,000 in Bitcoin. The $25k handle could be looked upon as a floor for price before sellers get excited to price in additional declines.
Gold above $2,000 still a long-term play
The pause in buying momentum for Gold is more likely than not because of the changing expectations in the market that the Federal Reserve will not be cutting US interest rates. Such expectations after a drastic higher interest rates environment over the last year was always somewhat ambitious if inflationary pressures remained persistently strong.
I do expect for inflationary readings and jobs reports out of the United States to be seen as high-risk economic data releases for investors to watch. Should job numbers particularly show that higher rates in the United States are having a detrimental impact on the employment sector, sensitivity will increase that the Fed will not be able to hold interest rate policy at such levels. Even if some Fed officials suggest otherwise in their comments.
All in all, $2,000 will be looked at as a psychologically critical area for price action. As it has long been.
If global economic fears creep back into financial market sentiment and expectations resume that the Fed will need to reverse its current cycle of high interest rates policy, hope can resume that a return to above $2,000 in Gold is still possible.
It would not be unwise to keep an eye out for the ongoing company earnings season in the United States. Noise from major corporations hinting that higher interest rates are either impacting their own profitability, future revenue streams or potentially lead to consolidation of businesses and subsequent job losses might provide enough food for thought for the US Federal Reserve to stop focusing on inflation as the main priority.
