Capital markets come alive in late August and early September, and volatility returns. New trends often emerge, and opportunities to capitalise on them open up. Amidst the constantly changing financial landscape, investors must watch popular instruments like BTC and gold. OctaFX analysts explore the reasons behind the end of the crypto winter and the increase in demand for gold.
Bitcoin is dominating the crypto market while recovering its value
From November 2021 to December 2022, the price of Bitcoin fell more than four times. This period was called crypto winter. However, since the beginning of 2023, Bitcoin price has almost doubled—from $16,500 to $29,200, suggesting that the deep correction phase is over. The difference is also apparent if we compare the dynamics of Bitcoin and other cryptocurrencies. According to CoinGecko Crypto Industry Report, Bitcoin added 6.9% in the second quarter of 2023, while the entire crypto market grew by only 0.14%. Interest in NFT projects and stablecoins decreased, suggesting that Bitcoin's crypto winter is likely over.
A constant tailwind for Bitcoin
For Bitcoin, being an alternative to fiat money fueled its growth in the early days of the crypto industry. But it wasn't the only way to contribute to Bitcoin's rise—investors also started using it as a store of value. For the past few years, those looking for safe-haven assets have put Bitcoin on par with gold and, at the same time, as a counterweight to the US dollar and US treasuries.
OctaFX analyst Kar Yong Ang says that Bitcoin growth is possible if the US Fed starts giving dovish signals: in case of a key rate cut, BTC is likely to grow quite strongly and could reach the $45,000 range by the end of 2023 and up to $30,000 if the rate stays unchanged. His inclination is more towards the second option, as according to the CME Fed watch tool, the rate hike probability at the FOMC meetings in September 2023 is only 16%.
The Turkish crisis forced gold prices down in the second quarter
Since reaching an all-time high of $2075 in August 2020, gold tried to break this level twice: on 8 March 2022 and 4 May 2023. But each time, the price stopped and started to decline. The latest decline in gold prices from May 2023 to the current moment has a fundamental reason. According to the published report of the World Gold Council, net purchases by central banks fell by 64% in the second quarter to 103 tons. This slowdown is mainly due to gold sales by the Central Bank of the Republic of Turkey (CBRT), whose net sales totalled 132 tons in the second quarter of 2023.
According to Kar Yong Ang from OctaFX, the CBTR's actions have made gold prices decline since May 2023. The sales of the Turkish Central Bank were aimed at supporting the economy in an emergency and were more tactical than strategic. Therefore, the upward trend in gold demand in 2023 remains in place.
An additional factor is the anticipated peak of the Fed rate hike cycle and the falling value of the U.S. dollar. Lower rates increase the attractiveness of gold amid falling bond yields. The falling dollar rate makes gold cheaper for holders of other currencies. Following the comments of Kar Yong Ang, in 2023, gold may rise to a record $2,500 due to falling interest rates amid a non-growing global economy and a weak dollar. Thus, the estimated increase in gold prices can be more than 30%.
Investors should monitor Fed decisions to understand how much gold and Bitcoin will rise. The Fed raises the rate in a pessimistic scenario, making the dollar strong and Bitcoin and gold investments unattractive. In the positive case, the Fed starts to lower the key rate, encouraging investment interest in Bitcoin and gold as the best store of value. In such a case, gold will rise to $2,500 and Bitcoin to $45,000 by the end of 2023. The most likely scenario is neutral—in which the Fed pauses key interest rate changes until the end of 2023, increasing the likelihood of gold's rise above $2,000 and Bitcoin above $30,000. The starting point of the uptrend will be the FOMC decision of the U.S. Fed, which will be announced on 20 September 2023.
