Remember, Remember, the Fourth of September

KEY TAKEAWAYS 

  • The Fed’s position to maintain near-zero interest rates might push more investors to look towards crypto as an alternative investment 
  • A potential second economic stimulus package could result in further weakening of the U.S. dollar while driving the price of BTC upwards 
  • Price of Bitcoin has become increasingly sensitive to U.S. market conditions 

Sept. 4, 2017 marked the first regulatory clampdown on Initial Coin Offerings (ICOs) in China, which caused the price of Bitcoin to drop by four percent. Three years later, Sept. 4 saw the commemoration of a sharp correction, which started on Sept. 2, as the Decentralized Finance (DeFi) space began to show signs of fatigue. The dip was exacerbated by the collapse of Nasdaq following the voting deadlock in the second-round fiscal stimulus package in the U.S. 

Expectations that a second-round fiscal package was due to be released on Sept. 8 weren’t met, leading to a significant plunge of the Nasdaq index. House Democrats had initially passed a $3 trillion tax cut and spending bill to help jumpstart the U.S. economy following the devastating impact from the COVID-19 pandemic. The bill was quickly cast aside by the Senate, forcing the Democrats to reduce their stimulus package request to $2.2 trillion. Senate Republicans agreed to have less than half of the new amount put forward for a floor vote. 

Senate Majority Leader Mitch McConnell expressed concerns over whether the White House and Democratic leaders could strike a deal to pass another major coronavirus relief package before the upcoming election. A 36-minute call between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Sept. 1 failed to make any headway. Instead, Majority Leader McConnell proposed a pared-down COVID-19 relief package estimated at between $500 billion and $700 billion, which was put to the Senate floor on Sept. 3. However, even this slimmed-down version was blocked by Democrats in a bitterly disputed 52-47 vote. 

Source: CNBC

Some Federal officials asserted that the market shouldn’t be as reliant on aid packages, citing the need to limit federal spending as the main reason. The U.S. stock market has also floundered. Despite stocks soaring to record highs at the start of the month, the markets came crashing down mid-month, with investors and traders showing restraint owing to the growing number of COVID-19 cases around the world. More cases could lead to a second wave of city-wide and national lockdowns, further impacting markets globally. 

The sudden sell-off in September and the lackluster performance in the stock markets since are proof that many are ill-prepared for any extended sell-off triggered by the market’s disappointment in undelivered aid promises. The negative sentiment cascaded down to the crypto markets, resulting in the price of Bitcoin dropping to a four-month low. However, the market correction was as brief as it was sudden, and the price of BTC rose above the $11k mark for a brief period before returning to the comfort range between $10,400 and $11,100. Currently, BTC is floating below its 10-day and 50-day moving average, signaling the return of early bearish signs.  

The Fed concluded its two-day policy meeting on Wednesday, Sept. 16, announcing that the near-zero rate would likely be in place through 2023 to facilitate recovery from the pandemic-induced economic fallout. The Fed’s downward pressure on interest rates is likely to shrink returns of certain interest-paying assets, and drive investors to seek alternative investment opportunities, which some are progressively doing. Nasdaq-listed MicroStrategy acquired an additional $175 million of Bitcoin in a single purchase, following its colossal crypto investment of $250 million just a few months prior. CEO of MicroStrategy, Michael Saylor reiterated, “[the move] is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a Bitcoin standard.”

The level of investment is considerable. MicroStrategy will in no doubt be looking for a significant ROI as a result, which poses the question, will the price of Bitcoin return to its all-time glory at $20,000 any time soon? Despite multiple macro signals of an imminent bullish run, there are still events pending that may move the market in either direction. Should both chambers of the Congress come to an agreement on a new stimulus package, we could witness further weakening of the U.S. dollar. Bitcoin, which has become increasingly sensitive to market conditions in the U.S. could, as a result, experience greater gains. 

As the lines between fiat and cryptocurrencies begin to blur, and as more institutional investors start looking at crypto as a viable alternative investment option, the market could see significant upturn. However, as crypto enthusiasts, we don’t want to see crypto hit new heights due to a failing traditional monetary system but rather, because more investors should look for more options and financial freedom.