Bitcoin Sells Off To Welcome New Japan PM

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As a seasoned crypto investor with battle scars from several market cycles, I’ve learned to navigate the rollercoaster of digital assets with a blend of caution and optimism. The recent selloff of Bitcoin following the selection of Shigeru Ishiba as Japan’s prime minister is yet another reminder that the markets are never predictable.

After a nearly 14% surge in Bitcoin (BTC) prices following the U.S. Federal Reserve’s 50 basis point rate cut around two weeks ago, there was a strong possibility for a major Bitcoin selloff. The appointment of a new prime minister in Japan over the weekend appears to have instigated this market shift.

In an unexpected move, Japan’s governing party chose Shigeru Ishiba as their next prime minister. Ishiba is known for backing the Bank of Japan’s (BOJ) aim to adjust monetary policy by increasing interest rates. After his selection, Ishiba announced plans for early elections in late October.

Following the Bank of Japan’s slight increase in interest rates at the end of July, which led to a sudden reversal of the yen carry trade and caused a widespread financial scare across the globe, pushing Bitcoin down from approximately $70,000 to below $50,000 within just a few days. The selling pressure was so intense that the BOJ felt compelled to intervene, using a former official to calm market fears that another rate hike wouldn’t occur until 2024.

Over the weekend, my analysis indicated that Ishiba’s selection had a significant impact, leading to a renewed strength in the yen and a substantial 5% decline in Japan’s Nikkei Stock Average. This selloff extended not just to traditional markets, but also to Bitcoin, causing it to dip from approximately $66,000 down to $63,300. At the moment of press, Bitcoin has slightly recovered to $63,800, representing a 3% decrease from its closing price on Friday. European stocks are currently experiencing a drop of about 1%, while U.S. stock index futures show only minimal losses.

 

Bitcoin Takes a Breather After Strong Run

Before this weekend, Bitcoin had been on an upward trend since the Fed reduced its key interest rate by half a percentage point in mid-September. Additionally, China’s implementation of monetary and fiscal stimulus to invigorate its economy played a role in this surge. As a result, the Shanghai Composite Index experienced a 8% increase on Monday, marking its best week in more than ten years.

Last week, toward the end of the period, I noticed several signals suggesting an overbought state. Among these were escalating perpetual funding rates for Bitcoin futures.

This week marks the start of a new month and brings forth significant economic updates and central bank discussions, particularly from the Federal Reserve. On Monday, Fed Chair Jerome Powell is set to address economic and monetary policy at the National Association for Business Economics’ annual gathering. The U.S. will disclose manufacturing and services sector data from the Institute for Supply Management (ISM) on both Tuesday and Thursday, with the highly anticipated September jobs report coming out on Friday. These figures may significantly impact the Fed’s decision regarding interest rates at their upcoming meeting in early November. At present, markets estimate a roughly two-thirds likelihood of a 25 basis point rate cut, as indicated by CME FedWatch. The Fed’s unexpected decision to reduce rates by 50 basis points in September instead of the forecasted 25 was the catalyst for the recent Bitcoin surge. A change in expectations for the November rate cut could potentially influence Bitcoin’s price trajectory once more.

 

Retail Participation in Bitcoin Rally Low

A significant debate arises about the ongoing Bitcoin surge: are retail investors participating? Historically, increased retail involvement points towards market excitement or greed, and can serve as a precursor for a market peak. Given that Bitcoin (BTC) is approximately 15% shy of its record high, it appears the masses of retail investors have not yet flooded in.

A key indicator of retail participation is the ranking of Coinbase’s (COIN) app in app store downloads. In the bull markets of 2017 and 2021, Coinbase ranked as the number one downloaded app near market tops. During Bitcoin’s most recent peak in March, it ranked in the top five, according to @CoinbaseAppRankBot. Currently, however, Coinbase ranks just 438th, close to its lowest level of the year, indicating a continued lack of retail interest.

 

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2024-10-01 10:57