Bitcoin's remarkable 8% rally this week has outperformed both gold and the S&P 500, yet it still lingers below its all-time high. In contrast, both the prized yellow metal and the benchmark U.S. stock index have soared to new heights. Gold, trading at $2,718, boasts a 32% increase year-to-date, approaching its most impressive annual performance since it surged 38% in 2010. The S&P 500, not far behind, has gained approximately 23% for the year 2024. Though Bitcoin has not enjoyed the thrill of setting new records, the cryptocurrency remains up by over 50% year-to-date, highlighting its solid performance despite the lack of a new peak.
One reason Bitcoin has not yet returned to its record highs from March, where it reached over $73,700, could be the phenomenon of "too far, too fast." At that time, its price had increased nearly fivefold within 14 months, nearly doubling in the initial 10 weeks of 2024 alone. Alongside this rapid growth, forced selling pressures over the summer added to the challenges. The German government's decision to sell a large amount of seized Bitcoin and the release of Mt. Gox tokens back to their owners added further selling pressure. Moreover, Bitcoin's nature of trading non-stop around the clock exposes it to higher leverage and volatility than most other assets, resulting in potential liquidation cascades that may push the price below its fair value.
However, signs of accumulation have surfaced, pointing to a potential upswing. Data from Glassnode shows Bitcoin being accumulated by both "shrimps"—investors with less than one Bitcoin—and "whales"—holders of 1,000 to 10,000 tokens. This trend reversal is marked by a deep blue coloring, signaling optimism. The potential for further upward movement is bolstered by anticipated rate cuts from Western central banks, the rise of a pro-crypto political climate with figures like GOP presidential candidate Donald Trump gaining traction, and an increasing flow into spot Bitcoin exchange-traded products (ETPs).
An often-overlooked catalyst is the weakening of the Japanese yen, which could play a crucial role in Bitcoin's journey to new heights. Recent data revealed Japan's headline inflation fell to a year-over-year rate of 2.5%, the lowest since April, while core inflation also saw a sharp decline. These figures could indicate that the Bank of Japan might hold off on further rate hikes. In August, even a minor increase from BOJ caused the yen to surge, leading to a temporary dip in global markets, including Bitcoin. Currently, the yen's value has declined to 150 against the U.S. dollar, its weakest since that early August turmoil. According to Bob Elliott, CIO at Unlimited Funds, Japan faces no urgent inflation concerns, as services inflation hovers near zero, alongside negative GDP for 2024.
Historically, Bitcoin has climbed over 1,000% against the yen in the past five years, but significantly less against other major currencies like the U.S. dollar, Euro, British pound, Canadian dollar, and Australian dollar. Gold also mirrors this pattern, rising by 150% against the yen, compared to a less substantial 80% to 90% gain against these other currencies. As market dynamics shift, Bitcoin appears poised for a potential resurgence, buoyed by foundational support and emerging catalysts.
