Bitcoin has reached a 30-day high above $65,000, leaving investors wondering what’s next for the cryptocurrency. While some analysts are optimistic about its potential for growth, others are cautioning against a market correction.
AI’s Impact on Markets
The biggest theme in markets remains the artificial intelligence (AI) boom. Earnings season is upon us, so shareholders in these businesses will be paying close attention to spending plans, product and service updates, and demand trends, among other variables, to ensure the story remains intact.
Of the top 10 positions in the S&P 500, all are directly exposed to the AI revolution. Combined, these businesses carry a gargantuan market capitalization of more than $25 trillion. AI has certainly attracted significant amounts of capital.
Since Bitcoin hit a record high in October last year, its price has fallen 47%. During the same time, the tech-heavy Invesco QQQ Trust rose by 16%. The market is favoring the latter.
If the biggest AI companies report better-than-expected financial figures this earnings season, it could reinforce a notable headwind for Bitcoin. Capital will keep flowing to AI stocks. And the leading cryptocurrency will continue to face an uphill battle to win over investors.
Eyes on the Federal Reserve
During the month of June, the Consumer Price Index increased by 3.5%. This marked a deceleration from the previous month, but it’s still well above the Federal Reserve’s long-run 2% target. Investors can’t overlook inflation, which has been a persistent theme in the economy.
Bitcoin holders, all else equal, favor a more accommodative central bank that’s on a path to lower interest rates. This pushes capital from investment opportunities viewed as safer and yield-generating to those further out on the risk curve. When rates are lower, investors seek higher returns by considering uncertain assets.
This situation can benefit Bitcoin. However, the CME Group’s FedWatch tool reveals that there’s a more than 90% probability that the fed funds rate will be higher in December than it is today. Investors might not want to bank on looser monetary policy.
Bitcoin faces near-term pressure. But the long-term bulls will take the current dip as an opportunity to keep buying.
A Cautionary Note
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