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Why Is Bitcoin Price Stagnating? Investment Firm CEO Answers
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Why Is Bitcoin Price Stagnating? Investment Firm CEO Answers

Jake Simmons
Jake Simmons
7 months ago
3 mins read
Bitcoin price news

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The stagnation of the Bitcoin price despite the first rate cut by the US Federal Reserve since 2020 has perplexed many investors and traders within the market. In a new post on X, Andrew Kang, CEO of Mechanism Capital addressed the disproportionate emphasis that market participants have placed on Federal Reserve rate cuts and economic stimulus in China.

Why Is Bitcoin Stagnating?

Kang challenges the prevalent market belief that interest rate cuts by the Federal Reserve will significantly boost Bitcoin and crypto prices. “Fed rates are only one of the factors that impact global liquidity, and global liquidity itself is only one of the factors that influence crypto prices,” he stated. Kang finds it “nonsensical to see BTC rally 4.5x during a period where rates were going to and at multi-decade highs—showing little correlation between rates and BTC—and then expect a strong inverse correlation to present itself as soon as rates start going down.”

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He acknowledges that some argue future rate changes are already priced into the market but counters that this logic should apply equally to rate hikes and cuts. “This is not to say that rates are not important, but rather that they are well overweighted by most market participants,” Kang added. He notes that equities have a stronger tie to interest rates due to factors like discount rates used in valuing cash flows and mature corporate debt markets used to finance growth.

Bitcoin vs EFFR
Bitcoin weekly chart vs. effective federal funds rate (EFFR) | Source: X @Rewkang

Addressing China’s recent economic stimulus, Kang observes that its impact on Bitcoin and crypto is even less significant than many believe. “It’s not surprising to see that the people extrapolating China stimulus as being extremely bullish for crypto are primarily non-Chinese,” he commented. According to Kang, those within China have noted a shift from crypto investments to A-shares in the stock market.

Supporting his claim with data, Kang pointed out, “Since Chinese stimulus was announced, USDT has traded to a discount to CNY. Still at 3% as of recent.” This suggests a decreased demand for the premier stablecoin Tether (USDT) in China, aligning with a move towards traditional equities.

Despite his critiques, Kang clarifies that he is not bearish on Bitcoin. “I just think that some people have gotten over their skis a little,” he remarked. Kang anticipates Bitcoin trading within a range of $50,000 to $72,000 until a significant new catalyst emerges.

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However, he remains optimistic about opportunities within the market, stating, “The constant rotation of capital and new projects being developed means there will still be coins to buy to generate returns as a bull.” Nonetheless, Kang warns of potential volatility due to leveraged positions: “The market will still be prone to smaller corrections if leverage gets too high (decently high right now).”

Engaging with the community, X user Jakubko (@erkousti) suggested that Bitcoin’s 2023 price increase is more connected to anticipation of an ETF launch than interest rates. Kang concurred, responding, “That’s exactly my point. Interest rates are only a small piece of the puzzle. Even though they were negative for BTC, other factors like the ETF were able to drive BTC price higher. Other factors could drive it higher or lower here. We are not guaranteed infinity prices just because of rate cuts.”

Echoing this sentiment, crypto analyst Astronomer (@astronomer_zero) commented, “I believe interest rates (and yield inversion) only have a negligible impact on price. They are rather a holistic metric important for bond market players. But the zero-effect on stocks or crypto is proven already.”

Another analyst, Res (@resdegen), highlighted the correlation between Bitcoin and monetary supply: “BTC is more correlated to the quantity of money than interest rates. It started to rise as the RRP decreased, which ended up in net positive liquidity, regardless of interest rates, which were indeed close to the top.”

At press time, BTC traded at $60,903.

Bitcoin price
BTC price, 1-day chart | Source: BTCUSDT on TradingView.com
Featured image created with DALL.E, chart from TradingView.com
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Jake Simmons
Jake Simmons

Jake Simmons

Jake Simmons, a dedicated crypto journalist, has been passionate about Bitcoin since 2016 when he first learned about it. Through his extensive work with NewsBTC.com and Bitcoinist.com, Jake has become a trusted voice in the crypto community, guiding newcomers and seasoned enthusiasts alike towards a deeper understanding of this dynamic field.

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His mission is simple yet profound: to demystify Bitcoin and cryptocurrencies and make them accessible to everyone.
With a professional career in the Bitcoin and crypto scene that began right after graduating with a degree in Information Systems in 2017, Jake has immersed himself in the industry. Jake joined the NewsBTC Group in late 2022. His educational background provides him with the technical prowess and analytical skills necessary to dissect complex topics and present them in an understandable format. Whether you are a casual reader curious about Bitcoin or an investor seeking to navigate the latest market trends, Jake’s insights offer valuable perspectives that bridge the gap between complex technology and everyday usage.

Jake is not just a reporter on technological trends; he is a firm believer in the transformative potential of Bitcoin over traditional fiat currencies. To him, the current financial system is on the brink of chaos, propelled by unchecked government actions and flawed Keynesian economic policies. Drawing from the principles of the Austrian school of economics, Jake views Bitcoin not merely as a digital asset but as a crucial step towards rectifying a failing monetary system. His libertarian views reinforce his stance that just as the church was separated from the state, so too should money be freed from governmental control.

For Jake, Bitcoin represents more than just an investment; it's a peaceful revolution. He envisions a future where Bitcoin fosters a sustainable and responsible financial framework for generations to come. His advocacy is not about opposition but about evolution, about laying the groundwork for a system that prioritizes transparency and equity over secrecy and inequality.

As a journalist, Jake’s articles are crafted with the precision of a scholar and the passion of a true believer. He provides not only news but also thoughtful analysis that connects the dots between daily developments and larger economic theories. His work is a beacon for those lost in the technical jargon often associated with crypto discussions, illuminating the practical implications and benefits of these technologies.

In summary, Jake Simmons is not just reporting on a revolution; he wants to be part of it, fully committed to enhancing public understanding and adoption of Bitcoin and cryptocurrencies. His work is more than just a collection of articles; it’s a resource, a guide, and a companion for anyone ready to explore the potential of this digital frontier. Whether you are taking your first steps into crypto or are a veteran looking to stay on top of the latest trends, Jake’s insights provide clarity and foresight in an often unpredictable industry. Join him on this journey to reshape the world of finance, one post at a time.

You can engage with his latest takes on Twitter: @realJakeSimmons.

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Reason to trust

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