Article source: Between the Lines
The last time Bitcoin broke through $100,000 was on December 5th last year. I remember we published a retrospective article at that time and sold part of our Bitcoin holdings. As shown in the image below.
Today (Beijing time, May 8th), the Federal Reserve decided to continue pausing rate cuts and maintain the current interest rates. Powell also reiterated that the Fed is not in a hurry to cut rates. This result basically met the market's previous expectations, so the market did not experience significant fluctuations.
In yesterday's article (May 7th), we mentioned several major macro factors affecting the current market trend, including the economic development prospects of the United States, the Federal Reserve's rate cut expectations, and the political situations in some countries/regions.
Regarding rate cuts, the market still expects a cut in July, and according to the Federal Reserve observation tool, the probability of a rate cut in July is currently 55.9%. As shown in the image below.
As for the global situation, the news currently focuses on the conflict between India and Pakistan. In the recent conflicts, Pakistan claimed to have shot down 5 Indian fighter jets and 1 drone (which India denies). From the available information and data online, it seems to show the actual combat effectiveness of Eastern weapons.
In yesterday's article, we mentioned that if Powell's speech meets market expectations, Bitcoin might challenge the $99,000 position. As of the time of writing, Bitcoin's price is around $98,700, seemingly attempting to break the $100,000 mark again. As shown in the image below.
1. What is driving the current Bitcoin price?
After existing variables (including tariff issues, rate cut expectations, etc.) are gradually digested by the market, new variables will have a short-term impact on the market.
From the current macro situation, the India-Pakistan conflict seems to be a new variable. For such geopolitical conflicts, market reactions are often inconsistent. Some investors (funds) may choose to turn to gold as a hedging tool, while others may use Bitcoin as a hedging tool.
Since the beginning of this month (May), as global situations change, Bitcoin has again touched the $97,000 range. However, from the current comprehensive development of the crypto market, although Bitcoin has been included in the U.S. strategic reserve plan (currently only in the planning stage), it does not yet possess the attributes of a global safe-haven tool. At present, it feels like Bitcoin's rise is more driven by news and mainly driven by institutional hedging and speculation.
Combining the ongoing tensions in some countries/regions, this might cause a Short Squeeze, where previously over-leveraged short positions may be cleared by the market, thereby pushing Bitcoin back to $100,000 or higher.
However, whether this price increase is sustainable or how long it can last remains a question.
As for how to deal with the current market, it depends on your personal position and risk appetite. As we mentioned in the previous article: opportunities and traps can appear simultaneously. Unless you are a very determined long-term Bitcoin holder, it's best not to be fully invested during a bull market. Protecting profits is more important than gaining risky profits, or you might miss greater opportunities in the next cycle.
In our view, the core and underlying logic of the market is still liquidity. Without fundamental changes in liquidity, rapid price increases are both opportunities and risks in the short term.
2. Soaring Bitcoin and Emerging Stablecoins
Global tensions can not only drive up gold and Bitcoin prices to some extent, but we also cannot ignore stablecoins.
Currently, stablecoins seem to no longer be exclusive to the crypto industry but have become a broader trading currency in some global contexts (like digital dollars). Although there's no clear data support online, we can speculate that with escalating India-Pakistan conflicts, USDC or USDT might become an important hedging tool for some investors in both countries, potentially causing a surge in stablecoin demand.
In the development history of the crypto industry, we believe stablecoins have been the most successful and have the best "breaking out" effect, followed by Bitcoin. This may also reflect the issue we mentioned in previous articles, as shown in the image below.
Crypto market capitalization depends on stablecoins, but in this cycle, stablecoin issuance continues to break historical records, while crypto market capitalization growth falls short of theoretical expectations. The core reasons might be concentrated in several aspects:
- Mainly used to purchase Bitcoin, rather than boosting altcoin market value like in previous cycles
- Heavily used in DeFi activities and exchange financial products (especially USDC)
- Used in specific "breaking out" scenarios, such as certain illegal or gray transactions, cross-border remittances, cross-border consumption, etc.
Anyway, as we said in the previous article: the current market seems to have reached another critical moment.
In the short term, tariffs and rate cuts have been largely digested. The new variable is now geopolitical conflicts (currently mainly the India-Pakistan conflict). People seem to no longer focus on the fundamentals of the crypto market, and prices are now mainly driven by news (such as headline reports, Trump's tweets, Powell's speech, etc.).
On one hand, Bitcoin is now attempting to break through the $100,000 mark again!
On the other hand, this breakthrough seems detached from some fundamentals. Will $100,000 become a new trap? If the India-Pakistan conflict suddenly changes direction in a few days, with India opening the floodgates and Pakistan shaking hands again, how will the market choose? What strategy will you have?
This article can also be considered a supplement to yesterday's article (May 7th). At the end of the article, we once again share the sentence from yesterday's article with everyone: Under the current market sentiment, if your investment risk appetite is not that high, then in the short term, the most prudent method is still to continue maintaining a sufficient proportion of cash liquidity, and do not rashly go All In or fully invested. Only when your position makes you comfortable, allowing you to attack when possible and defend when necessary, can you better face potential market fluctuations. Of course, if you are a very firm long-term believer in coin-based HODLing, then you can still continue to buy and accumulate more Bitcoin at any time.
