It’s an old stock market wisdom: ‘Sell in May and go away’. Freely interpreted: sell your positions, go enjoy the weather and we’ll see you again in the autumn. Are we seeing this reflected in the share price now, is the party over in the crypto market?
A brief tour d’horizon 👇
For the first time since August 2023, Bitcoin closed the month with a negative result. The rest of the crypto market followed in Bitcoin’s wake. If you had become accustomed to the strong price rises of last six months, this may have come as an unpleasant surprise, but the current developments can be well understood within a framework of macro developments and the cyclical behaviour of the crypto market.Therefore, this cooling of the market is embraced by many as necessary and healthy for the market’s continued positive trajectory. Some of the narratives that supported the price gains in recent months have lost relevance and their positive influence has waned for now. It is then understandable that we see the market consolidating now.
In short, what are we talking about? 👇🏼
- ETF: Bitcoin ETFs launched in the US in January this year. Since then, those funds collectively hold over $50 billion (!) in Bitcoin, far exceeding all expectations. The first effects of this (the hype and initial inflows of capital) seem to have been absorbed by the market by now.
- Interest rates: Early this year, the market was counting on the US Federal Reserve to cut interest rates substantially as inflation was on course to 2%. With US inflation hovering around 3%, these interest rate cuts are further out of sight.
- Halving: At the end of April, the Bitcoin Halving went quietly, as always and as expected.
That said, of all these developments, the real effects are usually felt only in the longer term.
- Institutional buyers (such as pension funds) of the ETFs are not going overnight and will take their time before stepping in gradually.
- The market now expects the Fed not to cut interest rates before September.
- The predicted scarcity in Bitcoin, caused by the Halving, needs more time to materialise, especially now that the parties involved in Bitcoin mining have been able to take advantage of the already rising price and not be forced to sell Bitcoin.
In short; reason enough for a consolidation in the market, without affecting the fundamental, bullish structure.
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Disclaimer: this is not financial or investment advice. These analyses Berend writes in a personal capacity and are based on his own perspective.
