Investors should carefully consider their positions in Bitcoin (BTC) and Bitcoin mining stocks, expecting high volatility ahead of the highly anticipated Federal Open Market Committee (FOMC) decision on Wednesday, according to 10X Research founder Markus Thielen.
“Without macroeconomic support, Bitcoin is likely to remain in its challenging trading range,” he wrote in a new report.
The cryptocurrency has shown signs of resilience, with a brief spike to $70,000 on Monday. But now BTC needs the Fed to adopt a dovish stance if it's going to build on that momentum, said Thielen.
The market is currently pricing in more aggressive rate cuts than the Fed has signaled, according to the report. Which means anything less than an accommodating tone from Federal Reserve Chair Jerome Powell could trigger a sell-off in both stocks and cryptocurrencies.
“The spotlight is on Powell to convey that the FOMC is cautiously considering rate cuts in upcoming meetings,” he writes.
Historically, the S&P 500’s performance following the first rate cut after a tightening cycle has been inconsistent. While there have been periods of robust growth, the index has also experienced sharp declines after a rate cut—particularly during recessions.
With recession probabilities on the rise, according to various economic models, investor caution is warranted.
However, there’s a glimmer of hope.
“As inflation declines over the past few months and the labor market shows increasing risks, conditions for rate cuts are becoming favorable,” Thielen notes.
A potential shift towards a more accommodative monetary policy could ignite a rally in both stocks and Bitcoin. This could be a double-edged sword for Bitcoin miners.
While a Bitcoin price surge would benefit the industry, the sector is grappling with declining revenues due to the recent halving and increased competition.
Several miners are set to report earnings in the coming days, and analysts have been predicting they'll report disappointing results.
Marathon Digital Holdings (MARA), a key industry player, is anticipated to report a quarterly loss. “Marathon’s realized hashrate declined to 75% in June,” the report states.
Given the company’s track record of missing earnings expectations, the report warns that the upcoming earnings release could trigger a sell-off.
10X Research maintains a cautious stance on Bitcoin mining stocks but suggests that a sharp decline in share prices could present buying opportunities for long-term investors.
“While we remain cautious with highly risky and volatile assets, depressed prices may offer opportunities for patient investors to be rewarded,” the report states.
Edited by Stacy Elliott.