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.
About OctaFX
OctaFX is an international broker that has been providing online
trading services worldwide since 2011. It offers commission-free access to
financial markets and various services already utilised by clients from 180
countries with more than 42 million trading accounts. Free educational
webinars, articles, and analytical tools they provide help clients reach their
investment goals.
The
company is involved in a comprehensive network of charitable and humanitarian
initiatives, including the improvement of educational infrastructure and
short-notice relief projects supporting local communities.
OctaFX
has also won more than 60 awards since its foundation, including the ‘Best
Online Broker Global 2022’ award from World Business Outlook and the ‘Best
Global Broker Asia 2022’ award from International Business Magazine.