The price of Bitcoin (BTC) continued to rise in Thursday trading, climbing 4% despite the negative US gross domestic product (GDP) report.
Quarterly growth fell 0.9% from estimates of a 0.5% increase. This decline marks the second consecutive quarter of negative GDP growth, historically a sign of an economic downturn.
Officially, the National Bureau of Economic Research determines when the United States has entered a recession based on a number of factors.
US Treasury yields tumbled after Thursday’s report, with 10-year yields outperforming 2-year yields. Bond yields are inversely related to prices, meaning that when one rises, the other falls. When Treasury bond yields fall, it means that bonds are being bought. Investors often buy safer Treasuries (rather than stocks or cryptocurrencies) when they doubt the strength of the economy as a whole.
In traditional equity markets, the S&P 500 and Dow Jones Industrial Average rose 1.2% and 1.1%, respectively.
The price of Ether (ETH) also rose on Thursday, climbing another 9% after jumping 16% on Wednesday.
Altcoins were also in positive territory, with Cosmos’ ATOM token jumping 8% and Polkadot’s DOT token up 9%.
●S&P 500 close of the day: 4,072.43 +1.2%
● Gold: $1,774 per troy ounce +3.2%.
● 10-year Treasury daily yield: 2.68% -0.05.
Bitcoin, Ethereum and Gold prices are taken around 4:00 pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); gold is the COMEX spot price. Information about CoinDesk indices is available at coindesk.com/indices.
Do potential difficulties for the US economy herald rising asset prices?
Bitcoin continued its advance on Thursday, climbing above $23,000 despite the GDP report showing decline rather than rise in the second quarter. The negative 0.9% follows a 1.6% decline in the previous quarter and a 0.5% increase in growth that was not in line with forecasts. See article: Good news if you have ETH in your wallet: Ethereum rises above $1600 despite record high inflation. However, asset classes have reacted favorably, with traditional finance and crypto prices rising as investors see evidence that the economy is slowing to a slower and more desirable pace rather than sinking into recession.
Bond markets were more skeptical, with 2-year Treasury yields outperforming 10-year Treasury yields, resulting in an inverted yield curve. An inverted yield curve is an interest rate environment in which long-term debt instruments lag behind short-term debt instruments of the same credit quality. Buying Treasury bills is essentially a loan to the US government with the expectation that the loan will be repaid with interest (i.e., a rate of return).
When the yield on a two-year loan is higher than a ten-year loan, the bond markets require a higher interest rate on a short-term loan than on a long-term one.
Historically, in the United States, such scenarios have been the harbingers of a recession. The image below shows the spread between 10-year and 2-year Treasury yields and how this spread has been falling since March 2021. Shaded areas indicate areas of recession that historically occur 12 to 18 months after a reversal.
10-year fixed-maturity treasury bond minus 2-year fixed-maturity treasury bond (Federal Reserve Bank of St. Louis)
Rising asset prices following negative economic data suggests that markets expect the Federal Reserve to take a more lenient approach to lowering inflation and may pursue active price-friendly policies.
Meanwhile, the Commitment of Traders (COT) report shows that speculators are building up their long Bitcoin positions. This report provides a weekly overview of traders’ positions in the futures markets and is published by the Commodity Futures Trading Commission (CFTC).
Positions of small speculators are shown in blue (see below) and positions of “large speculators” (i.e. asset managers) are shown in green. Starting around July 11, the COT report shows that small speculators are net buyers of BTC as they crossed the center line (0.0), thus moving into positive territory.
In the past, small and large speculators often clashed with each other (for example, in October 2021), and organizations probably ran out of BTC when retail investors went long.
At the moment, options markets are also showing signs of bullishness for BTC. Looking at BTC at the strike price, one can see a high concentration of call option volume and open interest at the $25,000 price level. As a reminder, a call option gives the buyer the right, but not the obligation, to buy BTC at a certain price (strike price). The existence of high volume at the strike price above the current price can be seen as a sign of bullish sentiment.
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Passionate about cryptocurrencies and DeFI, Thomas brings international news on the subject!