Cryptoverse: Bitcoin hits the heat in July’s jump

A display of virtual currency bitcoin and a one-dollar bill are seen in front of a stock chart in this photo taken Jan. 8, 2021. REUTERS/Dado Ruvic

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Aug 2 (Reuters) – It’s been a good month for bitcoin – and we haven’t said that in a while.

After months of freefall, it rose more than 17% in July, its best performance since October. Ether rose 57%, its biggest monthly gain since January 2021.

The increase was in line with gains in riskier assets such as stocks as investors bet that economic weakness could deter the Fed from tightening monetary policy.

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Bitcoin’s 40-day correlation with the tech-focused Nasdaq (.IXIC) now stands at 0.90 — up from 0.41 in January — where 1 means their prices are moving in perfect lock.

The leading cryptocurrency has been consistently positively correlated with the Nasdaq since late November, unlike previous years where it would regularly turn negative, meaning they moved in opposite directions.

Itai Avneri, senior vice president at cryptocurrency trading platform INX, described July’s convergence as “good news.”

“It means that institutional investors are looking at bitcoin like any other asset,” he said. “When the market turns — and it will turn — these institutions will come back and invest in crypto.”

The gains were not limited to bitcoin, as the value of the global cryptocurrency market again surpassed $1.15 trillion last month, adding $255 billion since the end of June, CoinGecko data showed.

Assets under management in digital asset investment products rose 16.9% to $25.9 billion in July, reversing June’s decline of 36.8%, according to research firm CryptoCompare.

Still, trading has been thin – suggesting many investors believe it is too early to be bullish against a highly uncertain macroeconomic backdrop, with inflation running rampant and America and Europe staring down the barrel of recession, not to mention collapse of several major crypto players.

Average daily volume for all digital asset investment products fell 44.6% to $122 million, the lowest since September 2020, CryptoCompare found.

“In the medium term, we are bearish (on crypto) despite the current bounce, this is in line with our stance on equities,” researchers at MacroHive wrote on Friday, citing inflation, recession risks and interest rate hikes.

A WAY FROM $60,000

Bitcoin is currently trading at $23,336, having strengthened by $24,000 after touching that level last week.

It will likely continue to trade in a tight range around $20,000, plus or minus 10% to 15%, until there is more clarity on the trajectory of the economy, according to Chris Terry, vice president at lending platform SmartFi.

“We could be in this stalled market for weeks and weeks.”

On the other hand, if the U.S. enters a prolonged period of recession and the Federal Reserve is forced to cut interest rates, bitcoin could benefit, said Russell Starr, CEO of Valour, which creates exchange-traded products for digital assets.

“You’re going to have to see another quarter of contraction before you see it get back up to the high $60,000 level,” he said.

For investors who dove into crypto during its rise at the height of the pandemic’s easy monetary policy, the next few months could be pretty bumpy, according to Adrian Kenny, senior trader at GlobalBlock.

“There is still, no doubt, quite a mountain to climb in terms of ‘normality’ or hopes of returning to the heights of 2021 any time soon.”

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char

Our standards: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to honesty, independence and freedom from bias.

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