Cryptoverse: Bitcoin Beats the Heat in July

A display of virtual currency bitcoin and a US dollar bill are seen in front of a stock chart in this illustration, taken Jan. 8, 2021. REUTERS/Dado Ruvic

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Aug 2 (Reuters) – It’s been a good month for bitcoin – and we haven’t said that in a while.

After months of free fall, it rose more than 17% in July, its best performance since October. Ether rose 57%, its strongest monthly gain since January 2021.

The rally was in line with gains from riskier assets like equities, as investors bet that economic weakness could deter the Fed from aggressively tightening monetary policy.

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Bitcoin’s 40-day correlation with the tech-focused Nasdaq (.IXIC) now stands at 0.90 – up from 0.41 in January – where 1 means their prices are moving in perfect lockstep.

The leading cryptocurrency has consistently positively correlated with the Nasdaq since late November, unlike previous years where it would routinely turn negative, meaning they moved in opposite directions.

Itai Avneri, deputy CEO at cryptocurrency trading platform INX, described the July convergence as “good news”.

“It means that institutional investors look at bitcoin like any other asset,” he said. “When the market turns – and it will – these institutions will come back and invest in crypto.”

Gains were not limited to bitcoin, as the value of the global cryptocurrency market crawled back above $1.15 trillion last month, rising more than $255 billion since late June, data from CoinGecko shows.

According to research firm CryptoCompare, assets under management in digital asset investment products rose 16.9% to $25.9 billion in July, reversing the decline from 36.8% in June.

However, trading has been lean – indicating that many investors estimate it’s too early to turn bullish in a highly uncertain macro background with rampant inflation, and America and Europe staring down the course of a recession, not to mention not to mention the implosion of some major crypto players .

Average daily volumes for all digital asset investment products fell 44.6% to $122 million, the lowest since September 2020, CryptoCompare discovered.

“In the medium term, we are bearish (on crypto) despite the current uptick, this aligns with our stance on equities,” MacroHive researchers wrote Friday, citing inflation, recession risks and interest rate hikes.

A LONG WAY FROM $60,000

Bitcoin is currently trading at $23,336 and is consolidating around $24,000 after hitting that level last week.

It will likely continue to trade in a tight range of about $20,000, plus or minus 10% to 15%, until there is more clarity about the trajectory of the economy, according to Chris Terry, vice president at lending platform SmartFi.

“We could be in this stalled market for weeks and weeks.”

On the other hand, if the United States enters a protracted recession and the Fed is forced to cut interest rates, bitcoin could benefit, said Russell Starr, CEO of Valour, which creates exchange-traded products for digital assets.

“You’ll have to go through another quarter of the recession before you see a resurgence to the lofty $60,000 level,” he said.

According to Adrian Kenny, senior sales trader at GlobalBlock, investors who dived into crypto during the wave at the height of easy monetary policy in the pandemic era could be quite bumpy in the coming months.

“There is undoubtedly still a significant mountain to climb in terms of ‘normality’ or the hope of a speedy return to the highs of 2021.”

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

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