Bitcoin’s Blues: Will the Cryptocurrency Bounce Back in the Second Half of the Year?
The cryptocurrency market has been stuck in a rut lately, with Bitcoin struggling to break out of its tight range between $60,000 and $70,000 since March. This week, it fell to the lower end of that range, putting it on pace to finish June down 10% - its worst month since April and second down month in three.
Bitcoin’s recent price action
But despite the current slump, investors are still optimistic about Bitcoin’s prospects in the second half of the year. Historically, July has been a strong month for the cryptocurrency, with it finishing higher in seven of the last 11 years. However, there are concerns about a supply overhang heading into July, which could put downward pressure on the price.
“The Bitcoin halving was a known positive supply event for the market for this year - we have less bitcoin being produced,” said Zach Pandl, managing director of research at Grayscale Investments. “There are always other known potential sources of bitcoin supply from government, for example, but it’s always uncertain when that’s coming to market.”
Bitcoin mining operations
The recent sale of seized Bitcoin by the U.S. and German governments has also spooked the market, with some investors worried that creditors may sell some of their Bitcoin in July, after waiting more than 10 years for a resolution with the now-defunct Mt. Gox exchange.
“This fear is justified given the recent behavior of Gemini creditors which are assumed to have liquidated part of the crypto assets received in recent weeks; in particular, almost $2 billion of crypto assets returned to 232,000 retail customers by bankrupt crypto lender Genesis and crypto exchange Gemini,” JPMorgan’s Nikolaos Panigirtzoglou said in a note this week.
Despite these near-term concerns, many investors believe that Bitcoin will retest its March all-time high of about $73,000 by the end of the year. A low CPI print in July could lead to a Federal Reserve rate cut, which would be positive for Bitcoin and other risk assets. Additionally, presidential election campaign messaging about the U.S. dollar could also catalyze the next leg higher for Bitcoin.
Bitcoin bull run
“We don’t know what candidate Trump’s views are on the U.S. dollar,” Pandl said. “Trump expresses a view that he would like to see smaller U.S. trade deficits, but so far, has mostly focused on the need for tariffs.”
“It’s possible that during the election campaign, Trump may introduce the idea that we need a weaker dollar,” he added. “Those two things in combination would be positive for bitcoin: Fed rate cuts and one of the two presidential candidates talking about dollar weakness.”
Growing demand for crypto ETFs is also expected to keep Bitcoin’s price “elevated” in the months ahead. Initial filings for ether ETFs were approved in May, and the funds themselves are in the process of getting S-1 registration approvals.
Crypto ETFs on the rise
“There is a lot of uncertainty in the market, but I’m pretty optimistic,” said Marion Laboure, senior strategist at Deutsche Bank Research. “I wouldn’t be surprised if we have more ETFs approved as well. If we have a clearer institutional framework, we will have more ETFs. … We are moving towards more democratization, more institutionalization of ETFs.”
Overall, while Bitcoin may face some challenges in the near term, the outlook for the second half of the year is upbeat. With growing demand for crypto ETFs, a potential Federal Reserve rate cut, and presidential election campaign messaging about the U.S. dollar, Bitcoin could be poised for a strong second half of the year.
