Bitcoin Rises 2.4% Amid Economic Concerns

Bitcoin has increased by 2.4% since retesting the $59,900 support level on October 3, despite facing initial resistance at $62,000. The gains on October 4 were largely influenced by macroeconomic factors, including US employment data, anticipated economic stimulus in Japan, and increasing concerns about the US financial system.

While the US economy is experiencing growth, fiscal conditions have been deteriorating. Notably, the US dollar has surged to a 50-day high against major currencies, including the euro, British pound, and Japanese yen. Historically, the US Dollar Index (DXY) and Bitcoin have shown an inverse relationship, but recent trends appear to challenge this pattern.

One possible explanation for this anomaly is the “Milkshake Theory,” which suggests that the US dollar is absorbing excess global liquidity by offering higher interest rates and showcasing stronger economic fundamentals. This dynamic attracts capital from other countries, bolstering the dollar even as investors turn to alternative assets like Bitcoin.

Further supporting this trend, better-than-expected US economic data has been released. On October 4, US payroll data showed an addition of 254,000 jobs in September, surpassing economists’ predictions and positioning the US economy ahead of other regions, thereby strengthening the dollar.

Meanwhile, concerns about global economic growth have intensified, particularly following Japan’s signals of potential economic stimulus. Japanese Prime Minister Shigeru Ishiba has reportedly instructed his ministers to draft an economic relief package that would provide financial support for low-income households and subsidies for local governments. This move represents a shift from Japan’s previous monetary policies, which have struggled with deflation for the last three decades.

A 9% weekly surge in oil prices, driven by escalating conflict in the Middle East, has raised global inflation risks. Increased transportation and logistics costs are likely to push consumer price indexes higher. Should these cost pressures persist, governments may need to inject more liquidity into markets to stave off an economic downturn.

In this context, Bitcoin could benefit from the expectation of a rising fiat money supply. However, its gains might be constrained by a “flight-to-quality” trend, as investors wary of a potential recession seek safety in cash holdings and companies positioned to withstand economic slowdowns.

Bitcoin and the Stock Market as Hedging Instruments

While the S&P 500 is not typically viewed as a risk-off asset, major tech companies like Apple, Google, and Microsoft—with their high profit margins and robust balance sheets—are increasingly seen as safer options compared to real estate or corporate debt. This perspective is especially relevant as investors anticipate further increases in US Treasury yields.

Billionaire investor Stanley Druckenmiller has voiced concerns that the US Federal Reserve is “trapped” regarding further interest rate cuts, given the current strength of the US economy. Reports indicate that Druckenmiller has allocated 15% to 20% of his portfolio to bets on rising US Treasury yields.

In this scenario, investing in debt instruments becomes less appealing, which supports the stock market and alternative assets like Bitcoin. Additionally, concerns about the US financial market have risen due to a significant increase in the Federal Reserve’s use of repurchase agreements.

These agreements enable eligible financial institutions to exchange bonds for emergency cash, acting as a safety net to avoid direct market intervention while keeping interest rates stable. However, analysts cited by Reuters argue that this increase in repurchase agreements indicates limited capacity for the Fed to add liquidity further.

As a result, Bitcoin’s positive performance on October 4 can largely be attributed to the prevailing macroeconomic landscape, as worries about US fiscal conditions continue to grow.