Economic Uncertainty and S&P 500 Drop Impact Bitcoin’s Momentum
Bitcoin (BTC) experienced an increase of 6.8% from March 5 to March 6, momentarily surpassing $92,000. Nevertheless, the trend shifted after the S&P 500 dropped by 1.3%, prompted by a caution from Philadelphia Federal Reserve President Patrick Harker regarding the US economic situation. Other elements also kept Bitcoin’s valuation under $95,000, such as escalating tensions in Ukraine and ambiguity surrounding potential US strategic reserves of digital assets.
Per Philadelphia Fed president Harker, there is increasing evidence indicating that the consumer sector is “under pressure,” particularly among lower-income demographics, according to YahooFinance. Harker supported a “pragmatic” strategy for the US central bank “in this climate of uncertainty,” while adding that price pressures are likely to “continue to diminish.” Harker’s remarks imply backing for more substantial rate reductions by the Fed, but they do not indicate economic strength.
Traders tend to increase their cash and cash-equivalent holdings when apprehensive about an economic downturn, regardless of whether the triggers are socio-political, like the situation in Ukraine, or linked to projections for the artificial intelligence sector. For Bitcoin to surpass $95,000, a reduction in uncertainty is essential, even if that results in higher inflation, which is inherently favorable for limited assets due to the implications for fixed-income instruments.
Rising war tensions and recession fears, exacerbated by the tariff conflict, propelled the S&P 500 volatility index (VIX) to its highest levels in 11 weeks. This signals that investors are more cautious than usual. Historically, during such phases, Bitcoin has struggled, particularly in the days immediately following local peaks in the VIX indicator.
Currently, with a VIX of 24, the S&P 500 volatility index is considerably higher than its previous level of 16 from two weeks ago and is now approaching its peak in the past 7 months. However, a probable outcome of deteriorating economic conditions is an expansion of the monetary base, as central banks are forced to stimulate their economies.
On March 6, China suggested having “more capacity to implement fiscal policy amid domestic and external uncertainties,” while the European Central Bank indicated that monetary policy is becoming “significantly less restrictive.”
Historically, an upsurge in the circulation of money has been significantly advantageous for Bitcoin, regardless of whether it is regarded as a risk-on asset or a hedging tool. Lyn Alden, a macroeconomic analyst, pointed out that Bitcoin aligns with “the direction of global liquidity 83% of the time in any given 12-month span, which is more than any other primary asset class.”
Nonetheless, Lyn Alden’s research emphasizes that Bitcoin is not insulated from short-term volatility instigated by “idiosyncratic events or internal market dynamics,” as evidenced by the speculation surrounding the US digital asset strategic reserve. For Bitcoin to recapture its upward momentum, investors are looking for a decisive conclusion from the upcoming Crypto Summit organized by the Trump administration.
Related: How can Bukele continue to accumulate Bitcoin after the IMF loan agreement?
Trump’s Upcoming Crypto Summit: A Pivotal Moment for Bitcoin
If Trump’s initiatives merely entail halting the sale of the government’s current Bitcoin holdings from administrative seizures, for instance, this would likely be viewed negatively by traders. Even if it becomes evident that any Bitcoin acquisitions depend on Congressional consent, it would still allow investors to reevaluate the potential upside, as it provides clarity regarding Trump’s expectations and strategies.
Moreover, a favorable result from the March 7 Crypto Summit might inspire other nations and publicly traded companies to consider Bitcoin as a reserve asset, potentially setting the stage for a sustained bull market toward $95,000 and beyond.
This article serves as general information and is not intended to be and should not be interpreted as legal or financial advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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