Key Points
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Bitcoin supporters continue to patiently wait for the top digital asset to enter a new bull market.
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So much capital has flowed to the AI trade, drawing attention away from the dominant cryptocurrency.
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With inflation still well above the Federal Reserve’s 2% target, Bitcoin holders can’t bank on lower interest rates in the near future.
Is Bitcoin(CRYPTO: BTC) ready to break out to the upside? This is what the bulls are hoping for, especially as the world’s top cryptocurrency has climbed 11% since the start of July (as of the afternoon of July 22). Bitcoin currently sits just under $66,000 per unit.
Where does the oldest, most valuable digital asset go from here? To be clear, no one knows. But these two factors have gotten in the way of sustainable price appreciation.
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1. AI has been attracting capital
The biggest theme in markets remains the artificial intelligence (AI) boom. Earnings season is upon us, so shareholders in these businesses will be paying close attention to spending plans, product and service updates, and demand trends, among other variables, to ensure the story remains intact.
Of the top 10 positions in the S&P 500(SNPINDEX: ^GSPC), all are directly exposed to the AI revolution. Combined, these businesses carry a gargantuan market capitalization of more than $25 trillion. AI has certainly attracted significant amounts of capital.
Since Bitcoin hit a record high in October last year, its price has fallen 47%. During the same time, the tech-heavy Invesco QQQ Trust rose by 16%. The market is favoring the latter.
If the biggest AI companies report better-than-expected financial figures this earnings season, it could reinforce a notable headwind for Bitcoin. Capital will keep flowing to AI stocks. And the leading cryptocurrency will continue to face an uphill battle to win over investors.
2. Eyes on the Federal Reserve
During the month of June, the Consumer Price Index increased by 3.5%. This marked a deceleration from the previous month, but it’s still well above the Federal Reserve’s long-run 2% target. Investors can’t overlook inflation, which has been a persistent theme in the economy.
Bitcoin holders, all else equal, favor a more accommodative central bank that’s on a path to lower interest rates. This pushes capital from investment opportunities viewed as safer and yield-generating to those further out on the risk curve. When rates are lower, investors seek higher returns by considering uncertain assets.
This situation can benefit Bitcoin. However, the CME Group‘s FedWatch tool reveals that there’s a more than 90% probability that the fed funds rate will be higher in December than it is today. Investors might not want to bank on looser monetary policy.
Bitcoin faces near-term pressure. But the long-term bulls will take the current dip as an opportunity to keep buying.
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Neil Patel has positions in Invesco QQQ Trust. The Motley Fool has positions in and recommends Bitcoin and CME Group. The Motley Fool has a disclosure policy.
