As global commodities are about to take a hit, the move could translate into some relief for the bitcoin and crypto markets. The nascent asset class is facing downside pressure as the US Federal Reserve (FED) prepares to prevent worsening inflation.
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At the time of writing, Bitcoin (BTC) is trading at $31,300 with a gain of 4% over the past 24 hours. In the past week, the benchmark crypto posted a 6% gain. BTC price has finally broken out of its consecutive weeks of trading in the red.
The trend may increase in the short term. According to a report by Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, commodities may be about to take a downside.
report good Bloomberg claims the following as an examination of the commodity spot index and factors indicating increased selling pressure for the sector:
Commodities may swing downwards in 2H, as they did in 2008, we see similarities in 2022 and a similar risk to an increased risk of a fall (…) of around 50%. Falls in wood and copper may be an early warning that the high-priced treat is gaining traction.
The Russo-Ukraine war, McGlone said, and global liquidity have plummeted. Experts claim that the expansion of money supply in the US is reversing as a result of the COVID-19 pandemic.
With the story of the disease moving away, the perception that the world is moving on from COVID-19, and high inflation in the US, are major factors behind the rise in commodities. This could be a headwind for the region in the near term, but there is good news for Bitcoin. McGlone noted:
If commodities continue to rise, there are more threats to economic growth, and the Federal Reserve could be further strengthened versus inflation. Gold could be the 2H price leader.
More blood in bitcoin ahead? Why the Fed wants pain in risk assets
As NewsBTC reported, a drop in commodity prices could have an adverse effect on bitcoin and riskier assets. If the Fed sees its toughening policy in effect, it may be more likely to be less aggressive.
A new rally in the commodity is a “threat” to economic growth, which would tell the Fed it needs to be more aggressive, which will translate into more pain for bitcoin. McGlone noted the following in this scenario as the BTC price relative to traditional stocks, such as the S&P 500 and Nasdaq 100, is currently trading above key supports:
A stay of the S&P 500 below 4,000 represents an uptrend for support for all riskier assets, especially industrial metals and gold. If equity prices keep falling, the Federal Reserve will have some help (…).
McGlone said market expectations of more interest rate hikes, which translate into more pain for bitcoin and stocks, are waning. Experts claim that the interest rate hike expectations have peaked at 2.5% and are currently around 2%.
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After a significant drop in the price of traditional equities, US financial institutions appear to be effective in containing inflation. However, McGlone said, the pain in bitcoin, stocks and riskier assets may be in its early stages:
But the underlying potential for what we see as the great reversal of risk assets in 2022 is visible in the early days (…), although a 20% return in the S&P 500 indicates that prices did not drop substantially. Is.