Optimism about the U.S. economy could lead to a drop in the price of Bitcoin against the dollar

Yesterday, the Fed’s statement was undoubtedly positive, with a much better assessment of the U.S. economy than before, but this may have caused the price of Bitcoin (BTC-USD) to fall. The statement emphasized:

“June’s strong job growth” and “an increase in labor force utilization in recent months.”

The statement also stressed that while household spending grew strongly, business investment remained weak.

In addition, this is the first time this year that the Fed has responded optimistically to the short-term risk assessment of the U.S. economy, saying that "short-term economic risks have been reduced."

In terms of the international economic situation, this is a stark contrast to just four months ago, when the U.S. central bank warned that "developments overseas have increased risks."

Although the Federal Open Market Committee decided to keep the interest rate in the range of 0.25-0.5%, one member dissented. Esther L. George voted in favor of raising the benchmark rate to the range of 0.5-0.75%. All in all, these factors indicate that the next Fed meeting in September is likely to see a rate hike.

Higher interest rates will increase demand for the U.S. dollar, which in turn will lead to a relative appreciation of other assets. Therefore, if economic data continues to show a positive outlook for the U.S. economy, the likelihood of a rate hike will increase, causing the price of Bitcoin to fall against the U.S. dollar.

Although the move by the US central bank will reduce people’s interest in buying Bitcoin, the Bank of Japan is planning a huge monetary stimulus plan, which should help increase the interest in buying Bitcoin. Yesterday, Japanese Prime Minister Shinzo Abe announced a 28 trillion yen (about 265 billion US dollars) economic stimulus plan.

Such a large amount of money injected into the economy means that this measure may take some time to be implemented. The stimulus plan hopes to weaken the price of the yen, which has surged recently as investors have sought safe-haven currencies such as the yen and Swiss franc. The increase in money supply and the debt held by the Bank of Japan has the effect of significantly weakening the yen.

The Bank of Japan is expected to cut interest rates further into negative territory this week to counter the appreciation of the yen and help Japan's export sector, which has been negatively affected by a strong domestic currency. The Bank of Japan is most likely to cut its benchmark rate to -0.1%-0.2% on Friday (00:00 GMT), with a statement to follow.

The chart below shows the impact of Japan’s negative interest rate policy on XBT-JPY. After the negative interest rate policy was implemented, Bitcoin managed to break through the psychological barriers of 5000 and 6000. Considering that the Bank of Japan started adjusting interest rates last Friday, we can expect such a long-term bullish trend to continue and see XBT-JPY pushed towards 8000 again.

In addition, Friday (12:30 GMT) will also see the latest US economic growth data, which will have an impact on the next interest rate decision of the Federal Reserve in September. Higher-than-expected growth will stimulate interest rate hikes, and the US dollar will strengthen in the market. The US Gross Domestic Product (Gross Domestic Product) is expected to be 2.6% in the second quarter, compared with 1.1% in the first quarter. The high index means that the possibility of interest rate hikes has increased further.

The chart below shows that BTC-USD fell below $400. After the Fed began to normalize its policy and raised the benchmark interest rate by 25 basis points, BTC-USD fell significantly. If the Fed decides to raise interest rates in September, a similar situation may occur again.

In this way, we can see that there is a divergence in the trends of BTC-USD and XBT-JPY. In the long run, the price of Bitcoin in Japanese Yen is expected to rise, but the price of Bitcoin in US Dollars is expected to fall as the Federal Reserve normalizes monetary policy and the US economy strengthens.

The Fed has to face its own credibility problem after misleading the market for so long. They will raise interest rates at least once this year under less than perfect conditions.

If other factors remain the same, if the income data is good and the market is ready for another rate hike, the US dollar will appreciate significantly and the situation of BTC-USD will not be optimistic.