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Why Commodities Could See Decline Soon, Good News For Bitcoin?

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Global commodities could suffer and the move could lead to some relief for bitcoin and the crypto market. The nascent asset class is under downward pressure as the US Federal Reserve (Fed) looks to stem the deterioration of inflation.

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At the time of writing, Bitcoin (BTC) is trading at $31,300 with a 4% gain in the last 24 hours. Last week, the benchmark cryptocurrency recorded a profit of 6%. The price of BTC has finally broken its consecutive weeks of trading in the red.

BTC with a slight increase on the 4-hour chart. Source: BTCUSD Trading Review
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The trend may continue in the short term. According to report from Bloomberg Intelligence senior commodities strategist Mike McGlone, commodities could be about to turn lower.

report states the following in an analysis of the Bloomberg Commodity Spot Index and factors pointing to increased selling pressure in the sector:

Commodities may fluctuate downward in the second half of the year, as they did in 2008. We see parallels in 2022 and a growing risk of a similar fall of around 50% (…). Falling lumber and copper prices could be an early warning that the higher price cure is gaining momentum.

Source: Mike McGlone via Twitter.

A war between Russia and Ukraine, McGlone said, and a drop in global liquidity. The expert argues that the expansion of the money supply in the United States as a result of the COVID-19 pandemic is changing direction.

As the narrative moves away from this disease, the perception that the world is moving away from COVID-19 and high U.S. inflation is a key driver of rising commodity prices. In the short term, this could be a headwind for this sector, but this is good news for Bitcoin. McGlone noted:

If commodities continue to rise, there will be more threats to economic growth, and the Federal Reserve may become even bolder in its fight against inflation. Gold can become a price leader in 2 hours.

More bitcoin blood ahead? Why the Fed is looking for pain in risky assets

Commodity price declines could have the opposite effect on bitcoin and risk assets, NewsBTC reports. If the Fed finds its tightening policy effective, it is likely to be less aggressive.

The new rally in commodities is a “threat” to economic growth that will tell the Fed that it needs to be more hawkish, leading to even more pain for Bitcoin. McGlone noted the following in this scenario as the price of BTC, correlated with traditional stocks such as the S&P 500 and Nasdaq 100, is currently trading above critical support:

The S&P 500 holding below 4000 represents a tide for all risk assets, especially industrial metals, and support for gold. If stock prices continue to fall, the Federal Reserve will get some help to curb inflation (…).

According to McGlone, market expectations of further interest rate hikes, causing even more pain for bitcoin and stocks, are declining. Experts say interest rate hike expectations have peaked at 2.5% and are currently around 2%.

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After a significant decline in traditional stock prices, US financial institutions seem to be successful in stopping inflation. However, McGlone added, problems with bitcoin, equities and risky assets could be early on:

but the main potential for what we see as a big return of risky assets in 2022 is showing up in the early days (…) despite the S&P 500’s 20% retreat indicating that prices haven’t declined enough.

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