In a confluence of economic factors, the United States appears to be headed for a stronger-than-anticipated recession, which could force the Federal Reserve’s hand on rate cuts, according to Valentin Fournier, an analyst at BRN.
This scenario, while grim for the broader economy, holds potential for a significant Bitcoin rally, pushing the cryptocurrency past previous highs, he wrote in a BRN research note shared with Decrypt.
At the time of writing the Bitcoin price is trading at $58,120, down about 1.1% over the last 24 hours. It sank to a 24-hour low of $57,072 during early Asian trading hours, according to Coingecko data.
Despite this recent downturn, Fournier is optimistic about Bitcoin’s future.
“Bitcoin is not yet fully out of its downward trend, as it experienced a slight correction during U.S. trading hours—a recurring pattern over the past few weeks,” Fournier said.
Fournier pointed out that comments from Federal Reserve Chair Jerome Powell, who made his semiannual monetary policy report to Congress this week, said the Fed needs to have “greater confidence” that inflation is moving towards 2% before initiating rate cuts.
“Incoming data for the first quarter of this year did not support such greater confidence,” Powell said during his testimony on Tuesday. “The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”
This cautious stance from the Fed suggests that rate cuts are not imminent and will be executed carefully.
Other macroeconomic indicators are also painting a bleak picture, Fournier added, highlighting the recent Services Purchasing Managers’ Index and unemployment data.
The Services PMI—a metric reported monthly by the Institute for Supply Management—came in at 48.8% for June, marking a 5% drop since May. The ISM noted that this is the third consecutive time the Services PMI has fallen in 49 months.
Meanwhile, rising U.S. unemployment levels indicate that the US could face a more severe recession than expected. When the Bureau of Labor Statistics updated the unemployment rate last week, it had ticked up to slightly to 4.1% in June from 4% in May.
These developments could lead to faster-than-anticipated interest rate cuts and increased government spending, potentially injecting liquidity into the market.
Despite—and in a way, because of—the current economic gloom, Fournier remains bullish on Bitcoin.
“While we still have quite a way to go, the Fed’s cautious approach indicates that they will not adopt a dovish stance until rate cuts are imminent,” he said.
The German government’s selling pressure on Bitcoin has cooled, and other factors are lining up to potentially boost Bitcoin’s value.
Upcoming Consumer Price Index (CPI) numbers and the possibility of a $1 billion short squeeze could propel Bitcoin back to the $60,000 mark, Fournier wrote.
“Bitcoin has now digested the intense sell-off from the German government,” he added. “It could keep pushing after the release of the CPI and squeeze up to $1 billion of shorts under the $60,000 mark.”
While some investors are taking profits following the recent bounce, the overall sentiment among analysts remains positive.
“We remain bullish on cryptocurrencies and expect them to largely outperform traditional stocks in the coming months,” Fournier said.
Edited by Stacy Elliott.