KUALA LUMPUR, MALAYSIA – Media OutReach – September 1, 2023 – Capital markets come alive in late August and early September, and volatility returns. New trends often emerge and opportunities to take advantage of them open up. In an ever-changing financial landscape, investors need to keep an eye on popular instruments like BTC and gold. OctaFX analysts explore the reasons for the end of the crypto winter and the increase in demand for gold.
Bitcoin dominates the crypto market while recovering its value
From November 2021 to December 2022, the Bitcoin price fell more than four times. This period was called the crypto winter. However, since the start of 2023, the price of Bitcoin has almost doubled from $16,500 to $29,200, suggesting that the deep correction phase is over. The difference is also evident when comparing the dynamics of Bitcoin and other cryptocurrencies. According to the CoinGecko Crypto Industry report, Bitcoin grew by 6.9% in the second quarter of 2023, while the overall crypto market grew by only 0.14%. Interest in NFT projects and stablecoins has waned, suggesting that Bitcoin’s crypto winter is likely over.
A steady tailwind for Bitcoin
For Bitcoin, being an alternative to fiat currency fueled its early growth in the crypto industry. But that wasn’t the only way to contribute to Bitcoin’s rise: investors also began using it as a store of value. Over the past few years, those looking for safe haven assets have placed Bitcoin on par with gold and, at the same time, as a counterweight to the US dollar and US Treasuries.
Kar Yong Ang, analyst at OctaFX, says Bitcoin growth is possible if the US Fed starts giving dovish signals: if policy rates drop, BTC should grow quite strongly and could hit the $45,000 range by the end of 2023 and up to $30,000. if the rate remains unchanged. Its inclination is more towards the second option, because according to the Fed’s CME monitoring tool, the probability of a rate hike at the September 2023 FOMC meetings is only 16%.
The Turkish crisis depressed gold prices in the second quarter
Since hitting an all-time high of $2,075 in August 2020, gold has attempted to breach this level twice: on March 8, 2022 and May 4, 2023. But each time, the price has moved higher. stopped and started to drop. The latest decline in gold prices since May 2023 until today has a fundamental reason. According to the report published by the World Gold Council, net purchases by central banks fell by 64% in the second quarter, to 103 tonnes. This slowdown is mainly due to gold sales by the Central Bank of the Republic of Turkey (CBRT), whose net sales totaled 132 tonnes in the second quarter of 2023.
According to OctaFX’s Kar Yong Ang, CBTR’s actions have driven down gold prices since May 2023. The Turkish Central Bank’s sales were aimed at supporting the economy in times of emergency and were more tactical than strategic. Therefore, the upward trend in gold demand in 2023 remains in place.
An additional factor is the expected peak of the Fed’s rate hike cycle and the decline in the value of the US dollar. Falling rates increase the attractiveness of gold in an environment of falling bond yields. The falling dollar exchange rate makes gold cheaper for holders of other currencies.
Following Kar Yong Ang’s comments, in 2023 gold could hit an all-time high of $2,500 due to lower interest rates amid a sluggish global economy and weak dollar. Thus, the estimated increase in gold prices may be more than 30%.
Investors should monitor the Fed’s decisions to understand how much gold and Bitcoin will rise. The Fed raises the rate in a pessimistic scenario, making the dollar strong and investments in Bitcoin and gold unattractive. In the positive case, the Fed begins to lower the policy rate, thereby encouraging investor interest in Bitcoin and gold as a better store of value. In such a case, gold will reach $2,500 and Bitcoin $45,000 by the end of 2023. The most likely scenario is neutral, in which the Fed suspends policy interest rate changes until the end of 2023, increasing the likelihood that gold will exceed $2,000. and Bitcoin above $30,000. The starting point of the uptrend will be the decision of the FOMC of the US Fed, which will be announced on September 20, 2023.
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