Key Takeaways
- •Low leverage appetite in Bitcoin (BTC) and Ether (ETH) contrasts with strong stock markets, indicating fragile sentiment despite improving liquidity expectations.
- •While economic uncertainty persists, anticipated monetary easing reduces downside risk for cryptocurrencies, favoring potential bullish momentum.
Market Performance and Investor Sentiment
Bitcoin (BTC) and Ether (ETH) experienced a surge on Wednesday, reaching their highest levels in two weeks. This upward movement coincided with growing investor anticipation of a more expansionist monetary policy. Weak economic indicators have bolstered expectations for fresh stimulus measures, consequently increasing demand for scarce assets. The S&P 500 index and gold also saw positive reactions as investors looked forward to increased liquidity entering the markets. However, with the total cryptocurrency market capitalization still sitting 29% below its all-time high of $4 trillion, traders of Bitcoin and Ether remain cautious, monitoring the possibility of a correction stemming from broader economic uncertainty.
The demand for scarce assets strengthened on Wednesday. This was evident in the jump in US 5-year Treasurys prices and gold approaching $4,240, marking a 3% increase over the past two weeks. Bitcoin maintained its position near $93,000, unchanged from two weeks prior. Ether, however, continues to trade 37% below its all-time high of $4,956, prompting traders to re-evaluate the outlook for the altcoin market.
The US labor market showed signs of slowing in November, with private companies cutting 32,000 jobs. Small businesses, in particular, faced the most challenging conditions. The ADP payroll report indicated a 0.1% pay decline for workers from October, which has helped to alleviate inflation concerns. Investors are now awaiting the Federal Reserve's interest rate decision on December 10th, expecting clearer guidance on the future direction of monetary policy.
Crypto Should Benefit from Additional Incoming Liquidity
Federal Reserve policymakers have presented diverging views, partly influenced by the absence of official US government data during the government funding shutdown that concluded on November 12th. Some officials advocate for rate cuts to counteract further labor market weakness, while others express concerns that additional reductions could exacerbate inflation, which remains significantly above the Fed's 2% target.
The increasing reliance on artificial intelligence investments by major global companies introduces an additional layer of uncertainty. Jean Boivin, head of the BlackRock Investment Institute, reportedly commented on the significant discussion surrounding the potential for a bubble, noting that "people are conscious of the risk." According to Yahoo Finance, BlackRock also pointed out the physical constraints associated with the large-scale expansion of AI data centers.
The US department store operator Macy's indicated on Wednesday that its outlook reflects ongoing pressures from cautious consumer spending and higher tariffs, factors expected to impact results in the final months of 2025. In an interview with CNBC, CEO Tony Spring stated that Macy's has been compelled to implement "selective" price increases across most product categories.
The demand for bullish leverage positions on Bitcoin and Ether remains notably low. Under neutral market conditions, the annualized funding rate on perpetual contracts typically falls between 6% and 12% to cover the cost of capital. This subdued conviction is particularly striking given that the US Russell 2000 Small Cap Index is trading just 2.3% below its all-time high.
The stock market is anticipated to directly benefit from expansionist monetary policies through reduced capital costs and government incentives related to AI and nuclear energy infrastructure. In the absence of a significant shift in market sentiment, cryptocurrencies may continue to underperform as job market conditions weaken and overall uncertainty builds.
Despite the soft labor and consumer data, cryptocurrencies are not facing an imminent risk of collapse. The anticipated boost in liquidity should help alleviate economic pressures and sustain demand for scarce assets. As long as monetary conditions continue to ease, Bitcoin and Ether are more likely to experience modest recoveries rather than sharp reversals.