A year ago, bitcoin was trading at $25,800. Since then, it’s more than doubled to $56,400. However, despite this significant rise, market sentiment doesn’t suggest a bull run is imminent. The Fear & Greed Index, a measure of how optimistic investors are on a scale of 1 to 100, remains at 34, the same level as it was a year ago, indicating fear, while the total crypto market cap has dropped by $400 billion since August.
The increased demand for bitcoin arising from the launch of spot bitcoin ETFs in January—as a group, they’ve already attracted $17.3 billion in inflows—-led to bitcoin hitting an all-time high of almost $74,000 in March, fueling widespread expectations of an ongoing bull market for crypto. But to the dismay of investors, that hasn’t materialized so far.
So, when will the much-anticipated crypto bull market begin?
Arthur Hayes, the co-founder of BitMEX, says it might not kick off until the end of September. In a recent blog post, Hayes explained that the delay in the bull market is tied to broader economic conditions, particularly the actions of the U.S. Federal Reserve and government spending policies. While his analysis dives deep into macroeconomics, the implications for crypto are clear: a surge in bitcoin and other cryptocurrencies could be on the horizon, but it might take a bit longer to materialize than some had expected.
Short-term U.S. interest-rate futures are now reflecting expectations that a 50-basis-point rate cut in September by the Federal Reserve is more likely than a 25-basis-point cut. Reflecting on past events, Hayes points out that the Fed’s decision to pause interest rate hikes in September 2023 led to a rise in U.S. Treasury bond yields. When these yields go up, it becomes more expensive for the government to finance its deficit, which can have a cascading effect on the economy.
The key number to watch here, according to Hayes, is the 10-year Treasury yield hitting 5% (yields are at 3.7% currently). If that happens, it could trigger a market shake-up that might initially drag down stocks and cryptocurrencies, but eventually lead to a new surge as the government responds with more injections of liquidity in order to lower Treasury yields, making it cheaper to finance its deficit. Lower rates from these injections would ease financial conditions, which is typically positive for risk-on assets like bitcoin.
For the crypto market, the pause in rate hikes is a double-edged sword. On the one hand, it suggests that the era of tightening is ending. On the other hand, rising bond yields could create short-term pressure on the market because they make riskier assets less attractive. Hayes believes that while bitcoin might chop around or even dip lower in the short term, the long-term outlook remains bullish. He anticipates that the real rally will kick off once the government steps in with new measures to inject liquidity into the market, likely around late September.
“If this scenario occurs, I expect intervention to begin in late September. Between now and then, bitcoin will, at best, continue to chop, and altcoins could dive deeper into the gutter,” Hayes wrote.
Additionally, September has historically been bitcoin’s worst month, with an average loss of 4.71%, according to CoinGlass. In contrast, October has typically been a strong month for bitcoin, with an average positive return of 22.9%.
Adding another layer to this outlook, Outlier Ventures recently published a report challenging the traditional belief in Bitcoin’s four-year halving cycle as a primary driver of price increases. According to their analysis, “2016 was the last time the halving had a significant, fundamental impact on BTC price action.” They argue that the current market dynamics are driven more by macroeconomic factors, such as government spending and global liquidity conditions, rather than the reduced supply of new bitcoin.
Read more: Bitcoin’s Post-Halving Price Performance So Far Is Worst Ever
While the crypto market might face more turbulence in the coming weeks, Hayes remains optimistic that a bull run is imminent. His advice to traders? Be patient and watch for the signs of a liquidity injection that could ignite the next big move in crypto.
