by Matthew HaywardSenior Market Analyst at PrimeXBT
October has historically been a strong month for cryptocurrencies, especially Bitcoin. However, we have yet to see the impressive gains we have seen in previous years. Currently, Bitcoin is up more than 6% during the month, which is rather encouraging. Given the way Uptober started, it seemed likely that the month would end either flat or with minimal returns. So, why is this, and why haven’t we seen the big gains expected? If we look at the beginning of October, several announcements and developments during that period contributed to Bitcoin’s initial decline earlier in the month.
Source: CryptoRover
Is a possible recession looming?
Historically, Bitcoin and the broader cryptocurrency market have not experienced a long period of significant uncertainty. Since Bitcoin was created in the late 2000s, it only existed in the post-2008 financial crisis period. This raises the question: What would happen if a “black swan” event occurred? How will this affect price movements and so-called “cycle theories”?
Source: Vanity Fair
Political instability that affects current price movement
The main events that we need to take into account during these times come from both political and economic perspectives. Politically, the US elections are just around the corner, and current opinion polls indicate Trump’s lead in terms of popularity. While the actual outcome will only be known on Election Day, history has shown that Trump’s candidacy has previously led to positive momentum for both traditional and cryptocurrency markets. He has also made clear statements supporting the adoption of cryptocurrencies if re-elected, which raises the question: Could this lead to greater adoption in this space? Only time will tell.
Another important political factor affecting both traditional and cryptocurrency markets is the ongoing tensions in the Middle East. At the beginning of October, we saw how these developments affected prices, with Bitcoin falling by more than 11%. This decline may be a major reason why the “bigger” returns that many traders and analysts expected for October have not been achieved yet.
Nowadays, the total market cap of the cryptocurrency market appears set for an extended push into new areas of interest. However, these political events may have short- or long-term effects on prices, depending on their outcome. Additionally, there are some interesting economic data points that continue to surprise and mystify market participants.
Marco economic uncertainty continues
In September, the Fed announced a massive 0.5% cut in interest rates, a notable move considering that interest rates have remained unchanged for so long. The last time they made such a strong interest rate cut, it coincided with the stock market crash and the start of the 2008 financial crisis.
After the interest rate decision was announced, non-farm payrolls data came in much higher than expected, contrary to previous reports. The Federal Reserve had previously confirmed its intention to support the labor market, and with the elections approaching, it appears to be achieving success. But the question remains: How important are next year’s reviews if these findings have already been inflated?
Source: Reuters
Is there a risk that inflation will continue to rise?
Following the Fed’s 0.5% rate cut and stronger than expected jobs data, the focus turned to inflation. The Fed reiterated its commitment to bring inflation back to its 2% target, but traders were wary of the risk of higher inflation following the interest rate cut. The latest CPI data came in slightly higher than expected at 2.4%, although slightly below the previous month’s figure of 2.5%. If inflation trends upward and US GDP data remains flat or declines, there is a risk of “stagflation.”
So how do these events affect cryptocurrencies and the markets in general?
As cryptocurrency adoption becomes more widespread and larger institutional players enter the market, we can expect traditional indicators to increasingly influence how risk assets like cryptocurrencies are traded. The chart below shows how the slight increase in CPI results (red line) coincided with a decline in the price of Bitcoin. This highlights the importance of considering key global events when predicting and interpreting current price movements in Bitcoin and altcoins in general.
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