What does the rest of the trading year have in store for Cryptocurrency?

By Matthew Hayward, Senior Market Analyst at PrimeXBT

Traditionally, the fourth quarter and October have been strong months for cryptocurrencies, particularly Bitcoin. However, this year, the gains have been less impressive than in previous years. Currently, Bitcoin has increased by over 5% this month, providing a glimmer of optimism. So, what has caused this underwhelming performance, and why haven’t we seen the expected rally?

Reflecting on early October, a series of announcements and shifts in the economic landscape contributed to Bitcoin’s initial decline, setting a challenging tone for the month. Analysing the infographic below shows that, during a “bull market,” the fourth quarter has historically been a period of significant growth for Bitcoin. With just two months left in the quarter, will Bitcoin maintain its upward momentum?

Source: Crypto Rover

Current price movements influenced by political uncertainty

Several key events demand attention from both political and economic perspectives. On the political front, the upcoming U.S. elections are in focus, with recent polls indicating a surge in Trump’s popularity. While the final results remain uncertain until election day, past trends show that Trump’s campaigns have often driven positive momentum in both traditional and cryptocurrency markets. He has also voiced support for advancing cryptocurrency adoption if re-elected, sparking questions about whether this could drive broader acceptance in the sector. Looking more closely at the infographic below, we can see that the timing of Bitcoin cycles alongside U.S. election cycles has generally resulted in a net positive impact on Bitcoin’s price following elections.

Source: Crypto Rover

Ongoing uncertainty in the macroeconomic landscape

In September, the Federal Reserve made a significant move by reducing interest rates by 0.5%, marking a substantial shift after an extended period of stability. This bold rate cut takes us back to the last major interest rate cut, where the FED also cut interest rates by 0.5%, which took place right before the stock market crash that triggered the 2008 financial crisis.

Source: Reuters

Following the announcement of the interest rate decision, Non-Farm Payroll data came in significantly higher than expected, contrasting with previous reports. The Federal Reserve had previously emphasised its intent to support the labour market, and as the elections approach, it appears to be succeeding. However, the question remains: how substantial will next year’s revisions be if these results are indeed inflated?

Could inflation continue to rise in the future?

In the light of the Federal Reserve’s 0.5% interest rate reduction and unexpectedly strong job reports, attention has turned to inflation concerns. The Fed reiterates lowering inflation to its 2% target; however, traders are now concerned about the potential risk of inflation increasing following the rate cut. Recent CPI figures showed a slight uptick, landing at 2.4%, just below the previous month’s rate of 2.5%. Should inflation continue to rise while U.S. GDP data remains stagnant or decreases, the economy could face the threat of “stagflation.”

Source: Reuters

Could an economic downturn be looming ahead?

Historically, Bitcoin and the broader cryptocurrency market have yet to face a prolonged period of major economic uncertainty. Since Bitcoin’s launch in the late 2000s, it has existed solely in the post-2008 financial crisis environment. This brings up an important question: how might the risk of a potential “Black Swan” event impact its price trends and disrupt established cycle theories?

Source: Seekingalpha

What impact do these developments have on cryptocurrencies and the broader markets?

As cryptocurrency adoption increases and more institutional investors enter the market, traditional indicators are likely to have a greater influence on trading strategies for risk assets like cryptocurrencies. The two charts below illustrate how the markets are anticipating these data releases and their impact on Bitcoin’s price movements. Notably, prior to the interest rate cut, the price of Bitcoin began to rise sharply. This is because, in an environment of interest rate cuts, risk assets like cryptocurrencies typically perform better. The charts demonstrate how this positive sentiment was already reflected in the pricing, leading to an upward movement following the announcement.

In the second scenario, we can see that the latest CPI data release was not favourable for the pricing of risk assets, as uncertainty grew regarding the possibility of rising inflation. If inflation were to start increasing, the chart below illustrates how the market was already pricing in a negative reaction to that data release.

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