Bitcoin (BTC) is set to end the third quarter of 2023 with losses of around 15%, its worst quarterly performance since the final quarter of 2022, when the cryptocurrency also lost 15%, as per currencyrush.com.
The world’s largest cryptocurrency by market capitalization, which had a market of around $513 billion as of the 25th of September, was last trading in the low $26,000s, around 17% below its summer 2023 highs in the upper $31,000s.
BTC has been weighed in Q3 amid a rise in US bond yields and the US dollar due to rising bets that the US Federal Reserve will hold interest rates at higher levels for longer.
US economic data has surprised to the upside throughout Q3, with survey-based measures of economic growth and the labor market metrics holding up better than expected, leading to traders dialling down their bets for a US recession.
At last week’s policy announcement, the Fed warned it may still raise rates again this year, and projected less rate cuts in 2024 than it had one quarter earlier.
Rising bond yields and a stronger US dollar are a headwinds for Bitcoin – higher yields on US government debt (considered a risk-free safe haven asset) reduce the incentive to hold risk-sensitive non-yielding assets like Bitcoin, while a stronger dollar makes USD-denominated Bitcoin more expensive for foreign investors.
As institutional adoption rises – a trend that is set to accelerate in the coming quarters as spot Bitcoin ETFs gain approval – Bitcoin is undoubtedly set to become even more sensitive to broader macro conditions.
A policy shift at major central banks towards rate cuts rather than rate hikes will likely thus be a key driver of future BTC bull markets.
And the rate cut narrative might not start taking hold until 2024.
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