When we enter the last months of the year on the financial markets, there can be a seasonal trend called the end of year rally. This trend is accentuated before the arrival of the Christmas holidays. This is why we are going to look at the behavior of bitcoin for end of year forecasts as well as the factors that can influence its course.
The parallel between the creation of bitcoin and the economy
Even though there are several schools of thought on the subject, the economic context remains an important element when discussing financial markets in general. But what about bitcoin? Even if this leads to several debates on its usefulness, I think that the creator(s) of bitcoin had a deep understanding of economics.
To recall the context in which bitcoin was created, it was in 2009 just after the 2008 financial crisis. To save the economy from the brink of collapse, the American central bank (the FED) had set up the quantitative easing. This consists of injecting liquidity into the financial system, it is more commonly known as money printing. The more liquidity we inject, the more the money supply increases (the US dollar in this case). At the same time, when bitcoin was created, a system of reducing the supply every 4 years (the halving process) was put in place as well as a global supply limited to 21 million bitcoins. This made it possible to be a sort of counter-offensive against the FED and its liquidity injection program.
The current economic context
When we study the economic context, we will take into account several things such as growth, liquidity and inflation. As for growth, we will be interested in its cyclicality, i.e. growth accelerations and growth slowdowns. An acceleration of growth remains a positive factor for all financial market assets. However, a slowdown in growth can generate more periods of volatility. Here is an example with growth accelerations:
Currently, from an economic point of view, we are still in the process of slowing growth. This is around 1%, which remains below the 2% average but the job market remains resilient.
The fact that central banks are still implementing restrictive monetary policy means that economic growth risks continuing to slow. Moreover, we can see in the table below, the delay effect between monetary policy and the evolution of growth.
The consequences of a restrictive monetary policy may take more than 12 months to have more significant impacts. This is why we must always remain vigilant.
If we take into account the leading indicators which give us the direction of the economy, we can see that we are still in contraction, around -8%. This also implies that we still have no economic rebound in sight for the moment.
If we take a closer look at the probabilities of changes in key rates, we can see that forecasts indicate a rate cut during March 2024.
That said, a drop in rates is not always a good sign. For what? Central banks lower rates because there is an underlying problem. This could be the start of a deflationary spiral, rising unemployment or a liquidity crisis. All of these elements can have an impact on the evolution of stock markets as well as cryptocurrency.
Factors that can influence price development
Before talking about the evolution and forecasts of the bitcoin price, we will again remind that it can depend on several factors. Some of these factors can be listed as:
- Supply and demand
- Liquidity
- The halving
- The US dollar
- The economic context (growth, inflation, liquidity)
- External events
All these elements are also linked with each other. For example, to revive growth, the central bank may have to inject liquidity. The process of injecting liquidity increases the monetary supply (here the US dollar), and when the dollar goes into a downward trend consistently, bitcoin rises if its demand remains observed. At the same time, when central banks become more accommodative (such as injecting liquidity and keeping rates low), this can increase demand.
In another register, the halving process which starts from the principle of reducing the supply every 4 years is perhaps also an average cycle calculated by its creator(s) to correspond to the average economic cycle of 5 years. It may not be a coincidence.
Bitcoin forecast for the end of the year
From a technical point of view, bitcoin is still above the 10-month moving average (monthly portrait), which remains technically bullish.
For now, bitcoin is acting as an end to the economic cycle. If we compare to the end of the last economic cycle, i.e. that between 2018 and 2020, we can see similar behavior. A rebound took place following the bear market without pushing towards ATHs however.
Here are the different scenarios that I am putting forward for the end of the year:
1/ Positive growth (even if weak) with a level of inflation which stabilizes at around 3% while having a still resilient job market. In this scenario, bitcoin could continue to vary in a price range between 20k and 30k.
2/ Still positive growth (even if weak) with an inflation level falling below 3% and a still low level of unemployment. In this scenario, we could pass the 30k mark.
3/ Scenario number 3 remains the worst scenario. That is to say, growth goes negative and the level of unemployment rises. This scenario could see bitcoin retest the latest lows. This type of scenario would possibly be a recessionary case, which causes a large part of assets to decline.
Bitcoin Forecast 2024-2025
Generally speaking and on average, an economic downturn cycle lasts around 18 months. Sometimes it’s shorter and sometimes it’s longer. THE bear market on bitcoin happen when we have an economic downturn. This is completely normal because there is less liquidity in circulation. The last bitcoin peak was made in November 2021 in parallel with the growth peak as well. We have therefore been experiencing a slowdown in economic growth for more than 18 months. That said, there are several reasons why 2024-2025 could be better years for bitcoin, including:
- Halving in 2024
- A possible change in the growth cycle during 2024
- The bear market lasts on average 18 months and we are already at 18 months.
Obviously, this is only based on probabilities and there are no guarantees.
Past performance does not guarantee future performance.
CONCLUSION
It’s important to remember that context is just as important as price. Here we have a bitcoin that behaves like the end of an economic cycle. That is to say a bear market followed by stabilization around a price range (20-30k). It is potentially possible that buying bitcoin today amounts to buying back bitcoin in its 2019 and 2020 price range. That said, before finishing, it is important to remember that you should only invest the money whose we are comfortable losing.
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