It has been a terrible year for Bitcoin, which lost more than half its value in 2022. However, some cryptocurrency investors are starting to question if the token could have struck a bottom, given that the price of the biggest digital asset has increased by approximately 20% since June.
The most recent indication of hope came from Galaxy Digital CEO Mike Novogratz, who stated in an earnings call on Monday that he didn't anticipate "other shoe to fall," similar to the failure of other significant crypto companies that had recently gone bankrupt, like Voyager Digital or Celsius Network.
With the crypto market out of crisis mode, Novogratz believes investors are looking for a fresh narrative that will push prices higher.
Of course, there are no fundamentals to speak of with Bitcoin. Looking at previous cycles is also unreliable. It is difficult to place much weight on history since Bitcoin has only been around for 13 years and has gone through four bull-bear cycles.
In this context, Morgan Stanley equities analysts released a research note on Tuesday attempting to identify warning indications that Bitcoin and other cryptocurrencies may be starting another bull cycle.
The two most important factors? The Fed and crypto investors have access to leverage.
"We would wait for fiat money supply contraction forecasts to become expansionary again or for crypto businesses to expand crypto leverage again for this crypto cycle to find a bottom," the analysts stated.
Despite the fact that the crypto market is only a few months out from its greatest crisis in history, the picture for crypto leverage does not appear to be all that bleak.
On the one hand, the failure of some major crypto lending firms and investors, such as Three Arrows Capital, makes it less likely that regulators will make it easier for traditional financial institutions to extend credit to crypto investors, leaving aside the question of whether big banks even want to do so right now.
However, Morgan Stanley analysts observe that the remaining crypto lenders appear to be continuing to provide high profits to investors wanting to lend out their coins, indicating that the sector isn't about to abandon that market.
The crypto futures market, another route for investors to speculate on prices, has also seen a drop in volume but remains healthy when compared to the aggregate market capitalizations of Bitcoin and Ethereum.
According to Morgan Stanley, as of Aug. 7, Bitcoin's future open interest was roughly 3.02% of its market capitalization, up from under 2% in January. Part of that rise might be attributed to the growing popularity of Bitcoin exchange-traded products, which are now only permitted to store futures rather than spot Bitcoin.
The Fed is thus the single most crucial element that might stymie Bitcoin's surge.
The researchers concluded that the close association between Bitcoin's market capitalization and broad money supply "continues to demonstrate that the availability of central bank fiat liquidity is what to watch."
Bitcoin and equities have recently risen on the belief that the Federal Reserve Board may have to cease rate rises sooner than predicted if a recession occurs. This is despite some members of the board stating that they are still focused on containing historically high inflation and do not see any signs of job-market deterioration that would cause them to hesitate.
Bitcoin supporters frequently portray digital tokens as a technical revolution that will someday change the way individuals store value and transfer and receive money. But, for the time being, the name of the game for investors is all too familiar: What will the Fed do?
The euro sank on Wednesday as a poll revealed that German business confidence declined in November, while the Turkish currency stayed under pressure as President Tayyip Erdogan supported interest rate cuts despite rising inflation.Forex