In recent years, bitcoin (BTC) has transcended its origins as an experimental digital currency to become a globally recognized financial asset.
The growing adoption of bitcoinby both retail and institutional investors, has generated a greater correlation with macroeconomic events.
Today, Bitcoin market fluctuations are largely (though not exclusively) influenced by central bank decisions and global economic indices, underlining its place in the modern financial economy.
For example, during the COVID-19 pandemic, massive monetary stimulus and lower interest rates in the United States and other global financial powers boosted demand for bitcoin, pushing its price to record highs. Similarly, the tightening of monetary policy by the US Federal Reserve (Fed) in 2022 led to a sharp correction in the asset’s price, reflecting its sensitivity to macroeconomic conditions.
With this in mind, it is impossible to analyze bitcoin’s behavior without considering market expectations regarding a soft landing for the global economy.
What is a soft landing of the economy?
The term “soft landing” is used to describe a scenario in which An economy that is experiencing accelerated growth or inflation manages to gradually decelerate without falling into a significant recession.In other words, monetary policymakers are seeking to cool the economy to reduce inflationary pressures, but taking care not to provoke a deep contraction that would affect employment or production.
One of the main challenges for governments is to balance the expectations of economic actors and control interest rates so that they do not abruptly discourage investment and consumption.
Against the current backdrop, global markets are watching closely to see whether the Fed and other central banks will be able to orchestrate a soft landing following interest rate hikes to combat inflation triggered by the fallout from the pandemic and disruptions to the global supply chain.
The following graph, taken from the website TradingEconomicsshows the US interest rate over the past 5 years.
The Fed aims to control inflation without sending the economy of the world’s leading financial power into a deep recession, which is complicated by the complexity of the current factors affecting global trade and energy prices.
There is an 80% chance of a soft landing, according to market expectations
“The Kobeissi Letter,” founded by financial specialist Adam Kobeissi, is a newsletter that provides analysis on global capital markets, including stocks, commodities and options. In its latest issue, publication shows that “Markets now see an 80% chance of a soft landing”.
However, statistically, the Fed does not have an easy task in achieving its goal:
“Since 1980, the Federal Reserve has only achieved one soft landing [a mediados de la década de 1990]which was described as one of its greatest achievements. However, only 17% of rate-cutting cycles have ended in a soft landing, raising the question: Can the Fed really pull it off now?
The Kobeissi Letter, financial newsletter.
The publication notes that currently, 79% of fund managers surveyed by Bank of America anticipate a soft landing, compared to only 11% who expect a hard landing. This suggests that A soft landing is already built into the marketalthough uncertainty continues to increase.
For the analysts of «The Kobeissi Letter», If the Fed achieves a soft landing, then there will be a significant rise in the S&P 500 index in the coming months. They add that if a recession is avoided by the end of 2025, “it would be historic, just as when [el expresidente de la Fed] Greenspan did it in 1995.
As you can see, Market sentiment is mostly positive for macroeconomic conditions, at least for the remainder of 2024 and the first few months of next year.
Bitcoin will benefit from a soft landing of the economy
Improving macroeconomic conditions as a result of a possible soft landing have a direct impact on assets considered “risky” such as bitcoin.
Even though bitcoiners see it as a store of value and a decentralized alternative to the traditional financial system, the market (in general, of course there are many exceptions) still considers bitcoin mostly as a speculative asset, similar to tech stocks or cryptocurrencies. commodities volatile. This means that when investors perceive a more favorable economic environment, with low interest rates and a lower probability of recession, they tend to take more risks, which favors BTC.
During periods of economic growth, investors tend to look for assets with a higher potential for profitability, and Bitcoin has proven to be one of the highest long-term return investments in recent years..
If expectations of a soft landing come to fruition, institutional and retail investors could increase their exposure to BTCboosting its price. Recent history shows that expansionary monetary policy and lower interest rates have benefited bitcoin, and a more stable macroeconomic context is likely to reinforce this trend.
Other factors combine to boost bitcoin
But the price of bitcoin does not depend only on the Fed’s monetary policies. Another factor to take into account is the Natural cycle of the BTC marketparticularly its behavior in the months following the halving.
As explained in Criptopedia (educational section of CriptoNoticias), the most recent halving took place in April 2024, reducing the reward per mined block from 6.25 BTC to 3.125 BTC.
Historically, halvings have preceded major bull cycles in the price of bitcoin. In the months following previous halving events, the price of bitcoin has seen significant increases, as occurred in 2013, 2017, and 2021, reaching all-time highs in each cycle. If history repeats itself, current conditions could be setting the stage for a new bull cycle, taking bitcoin beyond its last all-time high of $74,000.
This bullish behavior after halvings can be explained by the anti-inflationary nature of bitcoin. With limited supply and growing adoption, upward pressure on the price is inevitable. If we combine this factor with a favorable macroeconomic environment such as the one expected in a soft landing, the probability of seeing a rally in the price of bitcoin increases significantly.
In addition, the Recent approval of bitcoin ETFs in January 2024 represents a major catalyst for institutional demandETFs facilitate the entry of large capital into bitcoin without the need to buy the asset directly, removing operational and regulatory barriers that previously limited the exposure of traditional investors. ETFs allow pension funds, insurers and other large financial players to access bitcoin more easily, which increases demand for the asset and, therefore, raises its price.
On the other hand, the perception of bitcoin as a risk asset also means that in a soft landing environment, improved credit conditions and lower interest rates would make it easier to access capital. Investors could use this opportunity to get into bitcoin, driving the market even higher. Rising risk appetite in a stable macroeconomic context could coincide with a period where bitcoin is maturing as a financial asset.
In conclusion, the confluence of several factors mentioned here suggests that Bitcoin is in a prime position to benefit from current macroeconomic conditions.
If history repeats itself and big financial players increase their exposure to the asset, we could be facing a new bullish cycle that would lead bitcoin to surpass its previous all-time high. The pieces are aligned, and A soft landing for the economy could be the final push that bitcoin needs to reach new levels of valuation in the coming months.
Disclaimer: The views and opinions expressed in this article belong to the author and do not necessarily reflect those of CriptoNoticias. The author’s opinion is for informational purposes only and does not constitute investment advice or financial advice under any circumstances.
