As Bitcoin Hovers Around the $62,000 Level, 10x Research Warns That the Worst Might Be Far From Over

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As a seasoned researcher with over two decades of economic analysis under my belt, I have seen my fair share of market cycles and witnessed the rise and fall of various financial assets. The latest report from 10x Research has caught my attention, given its bearish outlook on Bitcoin’s future trajectory. While the recent surge in institutional interest in spot Bitcoin ETFs is certainly noteworthy, I am concerned about the broader economic landscape as highlighted by the ISM Manufacturing Index’s contraction for the fourth consecutive month.

A well-known research company specializing in cryptocurrencies has issued a strong caution regarding Bitcoin‘s future price direction. They predict that the current drop in Bitcoin’s value might just be the start of a larger fall, due to worries about an upcoming economic recession and Bitcoin potentially diverging from general stock market patterns.

Markus Thielen’s report from 10x Research highlights some optimistic signs in the crypto market’s current trend. These signals include an increase in institutional investment in spot Bitcoin ETFs and Bitcoin’s ability to withstand significant returns from the Mt. Gox exchange. However, when examining the larger economic context, the analysis adopts a more pessimistic outlook.

As a researcher, I’m particularly intrigued by the discrepancy between the vigor of the stock market, fueled largely by artificial intelligence excitement, and the signs of an economy potentially faltering, as suggested by the Manufacturing Index from the Institute for Supply Management. This index, a crucial economic barometer, has been showing troubling indications that have sparked concerns across various risk assets, including cryptocurrencies.

Based on Investopedia, the ISM Manufacturing Index, often referred to as the Purchasing Managers’ Index (PMI), is a vital monthly gauge of U.S. economic conditions. This index is compiled from questionnaires sent to purchasing managers at various manufacturing companies throughout the nation. The Institute for Supply Management (ISM) oversees this process. The resulting data offers a broad overview of the manufacturing industry’s health, and indirectly, the overall economy’s status. Essentially, this index gauges the demand for products by tracking factory ordering activity across the United States.

On the first working day of every month, the PMI (Purchasing Managers’ Index) is unveiled, playing a substantial role in shaping investor and business sentiment. This comprehensive report delves into various aspects of manufacturing such as new orders, production levels, employment rates, inventory management, prices, and outstanding work orders, thereby providing an intricate picture of the industry’s trends. The ISM Manufacturing Index is a summary index that assigns equal importance to new orders, production, employment, supplier deliveries, and inventories, all of which are seasonally adjusted before calculation.

Keeping a close eye on the Purchasing Manager’s Index (PMI), both investors and business experts find it valuable because it offers early warnings about economic trends. An increasing PMI score often indicates an expanding economy, which can boost corporate earnings and cause the stock market to become more optimistic. However, bond markets may show signs of unease when the PMI rises, as this increase could signal potential inflation issues.

The monthly PMI (Purchasing Managers’ Index) is significant because it captures the views of purchasing managers and supply chain leaders who are deeply involved in the day-to-day operations of their companies. Being at the heart of the business, they can effectively gauge market conditions since manufacturers need to adapt their raw material purchases based on fluctuations in product demand.

In simpler terms, when the PMI (Purchasing Managers’ Index) score is greater than 50, it means that the manufacturing sector is growing compared to the last month. A score exactly equal to 50 indicates no change, while a score less than 50 implies contraction or decline in the manufacturing sector.

Based on a statement released by the ISM on August 1st, it was disclosed that the Manufacturing ISM Report On Business showed a contraction in U.S. manufacturing activity for the fourth consecutive month in July, marking the 20th time over the past 21 months this has occurred.

The Manufacturing PMI® fell to 46.8 percent in July, a decrease of 1.7 percentage points from June’s 48.5 percent. Despite the manufacturing sector’s struggles, the overall economy has expanded for 51 consecutive months following a brief contraction in April 2020. A PMI® above 42.5 percent typically signals overall economic expansion. However, key indices remained in contraction territory: the New Orders Index dropped to 47.4 percent, the Production Index fell to 45.9 percent, and the Employment Index declined significantly to 43.4 percent.

Last month’s report showed a combination of positive and negative trends regarding pricing and supply chain indicators. Specifically, the Price Index experienced a slight uptick to 52.9%, indicating a moderate increase in prices. On the other hand, the Supplier Deliveries Index went up to 52.6%, signifying that deliveries are becoming slower. Furthermore, stock levels continued to drop, with the Inventories Index registering at 44.5%. Conversely, both the New Export Orders Index and Imports Index stayed in a contracting phase, reporting figures of 49% and 48.6%, respectively.

In simpler terms, Timothy R. Fiore, a member of the ISM Manufacturing Business Survey Committee, stated that the U.S. manufacturing sector has seen a deeper decline in activity, primarily due to weak demand, decreased output, and accommodative input conditions. This led many companies to reduce their production and employment levels because of the persistent slowdown in demand and federal monetary policies that are discouraging investment in capital and inventory. In July, 86% of the manufacturing sector experienced a contraction, an increase from 62% in June. Notably, all six major manufacturing industries showed a decrease, with notable declines in machinery, transportation equipment, metal products, food and beverages, chemicals, and computer and electronic products.

As a crypto investor, I’ve noticed an interesting flipside: five manufacturing sectors have seen growth recently. These include printing and related support activities, petroleum and coal products, various manufacturing industries, furniture production, and nonmetallic mineral products. However, the feedback from respondents was somewhat divided. They highlighted several challenges, such as softening demand, inventory management troubles, geopolitical uncertainties, and evolving consumer habits that are affecting sales projections. Many pointed out a broader economic slowdown, with some companies experiencing steep drops in order volumes and even negative earnings.

As a researcher examining historical trends, I’ve noticed that Bitcoin tends to undergo significant corrections when the ISM index peaks. The current economic landscape is particularly complex due to the lingering impacts of COVID-19 stimulus measures and robust government support, which some reports indicate might have inflated stock market valuations artificially. These factors could potentially influence Bitcoin’s trajectory in the near future.

The Federal Reserve has taken on a more lenient approach, suggesting possible interest rate reductions later this year, but a research firm cautions that these actions might not be enough to prevent an economic slump. This gloomy perspective is strengthened by the growing likelihood of a recession in 2025, a period often marked by substantial drops in the stock market.

If this economic projection comes true, the report indicates that Bitcoin might experience a significant drop in value. The researchers have noted similarities to the circumstances preceding the recessions of 2001 and 2007, suggesting that similar market forces could be active within the current economic scenario.

The study suggests a pessimistic outlook where the stock market mirrors or anticipates the fall of the ISM Manufacturing Index, indicating a possible recession. In such a situation, the report predicts that stock prices might experience substantial drops during the upcoming months. This predicted economic slump, according to the researchers, could lead to a significant decrease in Bitcoin’s value as well.

Under a very gloomy outlook, the report predicts that Bitcoin’s value might return to around $50,000, or possibly drop lower. This prediction is quite different from the optimistic views that have been prevalent in the crypto market lately.

As I type this (at 3:10 p.m. UTC on August 3), Bitcoin is being exchanged for approximately $62,010, marking a 1.1% decrease in its value over the last day.

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2024-08-03 18:36