Bitcoin prices will likely remain lackluster through November. Watch these 3 catalysts.

By Frances Yue

Welcome back to Distributed Ledger. This is Frances Yue, crypto reporter at MarketWatch.

Risk markets have mostly stabilized from the extreme volatility seen earlier this month, as fears of a recession and the unwinding of the Japanese yen carry trade drove selloffs across global markets.

I caught up with Alex Thorn, head of firmwide research at crypto asset manager Galaxy Digital Holdings, who believes bitcoin is likely to continue to trade in the range of $50,000 to $70,000 through November, barring any major unexpected events.

Thorn said that in the coming months, moves in crypto prices will likely be driven by macroeconomic conditions, updates on November's U.S. presidential election, and some digital-asset-specific occurences such as repayments to creditors by the bankrupt crypto exchanges FTX and Mt. Gox.

What will drive bitcoin

For one thing, investors across financial markets are closely watching data pointing to the health of the U.S. economy and any hints on the Federal Reserve's interest-rate-cut trajectory. If the Fed cuts its key interest rate in September, it would be bullish for risk assets across the board, Thorn noted.

Still, a September cut is mostly already priced in. "Unless the Fed surprises in one direction or another, it is not likely to have a major near-term impact on bitcoin," Thorn wrote in a recent note. Fed-funds futures traders are pricing in a 57.5% chance of a quarter-point rate cut and a 42.5% likelihood of a half-point cut in September, according to the CME FedWatch Tool.

On the election front, crypto investors have been favoring a Trump victory, as the former president has vowed to build a bitcoin reserve and ensure the crypto is mostly mined in the U.S.

Crypto traders have been placing bets around the presidential race, even though there is not enough statistical evidence to show that bitcoin's price is correlated with the odds of a Trump win, Thorn told MarketWatch.

It's also worth watching crypto-specific events that may impact assets' supply and demand.

Last week, the U.S. District Court Judge Peter Castel approved a consent order requiring FTX and its sister trading firm Alameda Research to pay $12.7 billion in cash to creditors.

It was a bullish development for bitcoin, Thorn noted. While the FTX estate is still in the process of selling its crypto assets, data tracked by Arkham Intelligence showed that the bankrupt exchange only held less than 0.1 bitcoin as of Tuesday.

Meanwhile, some individual and institutional creditors may use the cash repayment they receive to buy crypto, though the distressed funds that purchased claims in FTX are unlikely to do so.

"A lot of those creditors may have wanted to get crypto from FTX, but because of the bankruptcy laws and rules, they're going to get cash instead," Thorn said.

Bitcoin is up sigificanly since FTX collapsed, trading on Wednesday at around $59,408 - up 270% from a cyclical low below $16,000 in November 2022, when the exchange filed for bankrupty.

Still, bitcoin faces potential selling pressure from bankrupt crypto exchange Mt. Gox and various governments. Since July, Mt. Gox has been repaying crypto to creditors who lost assets in a hack of the defunct platform more than a decade ago. The exchange still holds over 46,000 bitcoins, which are worth around $2.7 billion based on the crypto's current price, according to data from Arkham Intelligence.

The German and U.S. governments also sold some bitcoins they seized earlier this year, putting further stress on the crypto. While the German government is done with its disposal, the U.S. government still owns more than 200,000 bitcoin, which are worth roughly $12 billion, according to Arkham Intelligence.

Crypto VCs

Crypto startups raised a total of $2.7 billion in 503 deals in the second quarter of this year, with infrastructure projects leading the way, according to a report by PitchBook. The invested capital was up 2.5% from the previous quarter even as deal volume dropped 12.5%, according to the report.

It marks the third consecutive quarterly increase in investment values, as prices for crypto assets remain elevated while institutional adoption has increased, the report noted.

Still, "the historically strong positive correlation between the total crypto market cap and investments into private crypto startups appears to be weakening," PitchBook analysts wrote in the report.

The crypto sector's market capitalization has now reached 93% of its peak in the previous cycle. However, venture-capital investments this year are off the pace of the $29.4 billion seen in 2022. That reflects the trend in the broader VC space, which has remained slow compared to 2021 and 2022, the analysts noted.

Crypto in a snap

Bitcoin (BTCUSD) rose 8.4% over the past seven days to around $59,319 at the time of writing Wednesday - roughly 20% off its all-time high of $73,798 reached in March. Ether (ETHUSD) advanced 13.4% over the past seven days to around $2,664, according to Dow Jones Market Data.

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-Frances Yue

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08-14-24 1429ET

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