3 Chart-Based Reasons Bitcoin's Bull Run is Just Beginning

• Global Central Bank Tightening Cycle and its Impact on Bitcoin
• Rise in Bitcoin's Price
• Global Central Bank Policy Cycle
• U.S. Financial Conditions Easing
• Fall in 10-Year Treasury Yield
• Potential Risks

Global Central Bank Tightening Cycle and its Impact on Bitcoin

The tightening cycle of the global central bank, which significantly affected financial markets, including bitcoin, last year, appears to have reached its zenith. Notably, U.S. financial conditions have softened despite the Federal Reserve's persistence on higher interest rates. The U.S. 10-year Treasury note is predicted to prolong its recent slump, boding well for risk assets.

Rise in Bitcoin's Price

Bitcoin$42,260 -0.64%'s (BTC) price has seen an impressive 120% growth this year, and many analysts predict further gains in the near future. They attribute these expectations to the likely approval of one or more spot exchange-traded crypto funds (ETFs) by the U.S. Securities and Exchange Commission (SEC), and the impending halving of the Bitcoin blockchain's mining reward due in April next year. The bullish sentiment is also being fortified by positive signals from the broader economy.

Global Central Bank Policy Cycle

The global tightening cycle negatively impacted financial assets, including cryptocurrencies, last year. However, recent charts suggest that this cycle has peaked. TS Lombard's chart shows the balance of central banks tightening versus those loosening since 1947. Positive values suggest a lean towards tighter monetary conditions, whereas negative values indicate a preference for easing.

A loose monetary policy boosts liquidity by releasing more money into the financial system, encouraging risk-taking activities. This was observed in the 18 months following the coronavirus crash in March 2020. Conversely, a tighter monetary policy pulls liquidity out of the system to control inflation, deterring risk-taking in financial markets, as was observed last year.

U.S. Financial Conditions Easing

The U.S. Financial Conditions Index (FCI) by Goldman Sachs has seen a significant drop from the year's high of 100.74 to just under 100. This suggests an optimistic outlook for the U.S. economy, a positive development for risk assets, including cryptocurrencies. Interestingly, most of Bitcoin's gains year-to-date occurred during U.S. trading hours.

Fall in 10-Year Treasury Yield

Further positive news for Bitcoin is the decline in the yield on the U.S. 10-year Treasury note, which has fallen by 50 basis points to 4.43% since the announcement of a slower pace of bond purchases at the beginning of the month. A decrease in the 10-year yield often encourages investors to seek higher returns through other assets like stocks and cryptocurrencies.

Potential Risks

However, there are potential risks to consider. The reversal of tighter financial conditions could introduce a more hawkish tone into Federal Reserve comments, causing markets to reevaluate the likelihood of another interest rate hike in the coming months. This might decelerate Bitcoin's rally. Other considerations include Japan's exit from ultra-easy monetary policy, geopolitical issues, U.S. commercial property concerns, and a potential increase in inflation.

Edited by Jonathan Stoker