What Bitcoin Investors Need to Know as October Begins?

As the new month begins, investors have been closely watching macroeconomic developments and central bank policy decisions at a time when bitcoin continues to trade within a relatively modest range.

The world’s best-known digital currency has fluctuated between roughly $18,950 and $19,650.00 since early October, TradingView figures show.

Around 3:00 PM ET today, it reached the upper end of that range, additional TradingView data shows.

Since then, it has pulled back a bit, trading near $19,600 at the time of writing.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Analysts highlighted several key variables that crypto investors should watch going forward to stay on top of the traditionally volatile digital currency markets.

Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, emphasized the key role played by macroeconomic data.

“Weakness in the macro markets continues to weigh on the speculative crypto markets,” he said.

Sifling also spoke to the market story related to this month, emphasizing that it has coincided with significant declines.

“As we head into October, this month’s seasonality is perceived as one of the worst times of the year for investors,” he said.

“Whether it’s a psychological expectation or an actual phenomenon, there have been 5 major declines throughout history during this month (like Black Monday), a day where the Dow Jones Industrial Average fell over 20% in a matter of hours.

Central bank policy

Sifling spoke of the important role that inflationary pressures play in the market by influencing the decision-making of central bank officials.

Those policymakers have raised benchmark interest rates several times this year in an effort to bring soaring prices under control, with the Federal Reserve raising its interest rate by 300 basis points between March and September.

Pushing this benchmark rate higher puts wider pressure on borrowing costs, causing interest-bearing financial instruments to produce higher yields and therefore making them more attractive to investors, a development that could reduce risk assets such as digital currencies.

“Inflation and rates are both trying to stabilize, and that’s what most investors are looking at,” Sifling noted.

“If inflation continues to worsen and the Fed continues to raise interest rates, we could see continued downside in risk assets like Bitcoin.”

“Bad news is good news,” for risk assets, analyst says

Also talking about such policy moves, Tim Enneking, CEO of Digital Capital Management, offered a different take on the matter, predicting that the high incidence of central bank rate hikes may ease as economic conditions soften.

“We are now in the ‘bad news is good news era.'” Lower demand, disappointing earnings, lower sales, today’s ISM print, etc., now constitute good news because they indicate falling inflation, showing that quantitative easing and higher interest rates may be coming to an end,” he stated.

Enneking pointed to the latest figures from the Institute for Supply Management, which showed that factory activity fell to its lowest level in over two years in September.

More specifically, the ISM manufacturing PMI for September, which compiles data from purchasing managers across the US, fell to 50.9, the most modest reading since May 2020, down from 52.8 in August.

While this latest number is another example of lackluster economic data, Enneking noted that it coincided with risk assets moving higher today.

The benchmark S&P 500 index, for example, climbed about 2.6%, while the Dow Jones Industrial Average rose 2.66%, according to Google Finance.

The Nasdaq Composite, a tech-heavy index of stocks, rose 2.3%, additional Google Finance figures show.

Bitcoin also saw some modest gains, rising close to 2%, according to TradingView.

The effect of the dollar strength

Several analysts emphasized the effect the high dollar has had on global risk assets, including bitcoin and digital currencies in general.

“In general, there appears to be an indirect relationship between the US Dollar Index (DXY) and the digital asset market, where a bearish DXY makes for a more bullish crypto,” internet lawyer Andrew Rossow emphasized.

The US dollar index, or DXY, passed 112.00 today, hovering near its multi-decade high above 114.00 reached last month.

The world’s reserve currency could potentially become even more robust if economic conditions weaken, said Armando Aguilar, an independent cryptocurrency analyst.

“If conditions continue to deteriorate, we could see investors hoard US dollars and pull capital out of the market, particularly risk-takers,” he predicted.

“If investors hoard US dollars, we could see the dollar index continue to climb as demand for it increases relative to other currencies we’ve seen depreciate,” Aguilar noted.

“A strong dollar reduces the purchasing power of international crypto buyers and this could have a negative impact on BTC and the overall crypto market.”

Key indicators

After commenting on the crucial role of the dollar, the analyst pointed out several other specific developments that investors should watch going forward.

“Investors should keep an eye on the BTC greed and fear index which has been on a downward trend in recent weeks and has struggled to get above 40 points,” he said.

The aforementioned index, which quantifies the sentiment of the bitcoin markets, reached 24 today, signaling extreme fear.

On October 1, it reached 20, suggesting even greater fear.

“Additionally, investors should look at inflows and outflows of BTC and other assets,” he stated, stressing that CoinShares provides regular reports on these developments.

“Investors can gauge how much demand there is for digital assets in a given week and can use that data alongside global macro data to assess investment opportunities.”

Furthermore, he suggested that investors closely monitor 10- and 30-year mortgage rates, inflation reports, unemployment figures and the monetary policy decisions of central bank officials.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.