US financial concerns are growing with Bitcoin price recovery

Bitcoin (BTC) increased by 2.4% after retesting the $59,900 support level on October 3, despite facing initial resistance at $62,000. In the year The results on October 4 were mainly driven by macroeconomic factors such as US employment data, Japan's economic stimulus expectations and rising concerns about the US financial system.

In the US, the economy is growing, but fiscal conditions have deteriorated. Interestingly, the US dollar has hit 50-day highs against other major currencies including the euro, the British pound and the Japanese yen.

Historically, the relationship between the US Dollar Index (DXY) and Bitcoin has been inverse. However, this latest move seems to defy that pattern.

One explanation for this anomaly is the “milkshake theory” that the US dollar is absorbing excess global liquidity by offering high interest rates and strong economic fundamentals. As a result, the US attracts capital from other countries, strengthening the dollar even as investors seek alternative assets such as bitcoin.

Better-than-expected US economic data further accelerated this trend. U.S. payrolls data released on Oct. 4 showed 254,000 jobs added in September, beating economists' forecasts. These figures reinforce the strength of the US dollar, putting the US economy ahead of other regions.

At the same time, concerns about global economic growth have intensified following signs of economic stimulus in Japan. Japanese Prime Minister Shigeru Ishiba has instructed his ministers to prepare an economic relief package, Reuters reported.

The plan is expected to include financial aid for low-income families and subsidies to local governments, which have been part of Japan's previous monetary policies that have struggled with inflation for the past three decades.

A 9 percent weekly increase in oil prices due to the escalating conflict in the Middle East is driving up global inflation. Increases in transport and logistics costs may push up consumer price indices. If these rate hikes continue, governments may be forced to inject more liquidity into the markets to prevent a recession.

In this environment, Bitcoin can be beneficial to maintain an increased supply of fiat money. However, gains may be limited by a “flight to quality” phenomenon, as investors are wary of a possible recession.

Bitcoin and the stock market are used as hedging instruments

The S&P 500 is not typically considered a risk-free asset, but given the high profit margins and strong balance sheets of major tech companies like Apple, Google and Microsoft, these stocks are considered safer options than real estate or corporations. Debt. This is especially true as investors expect further increases in US Treasury yields in the near term.

Billionaire investor Stanley Druckenmiller expressed concern that the U.S. Federal Reserve is “trapped” given the current strength of the U.S. economy when it cuts interest rates further, according to Bloomberg News. Druckenmiller also has 15 percent to 20 percent of its portfolio allocated to bets on U.S. Treasury yields, according to MarketWatch.

In this scenario, buying debt instruments will become less attractive to investors, which will support the stock market and alternative assets such as Bitcoin. More importantly, US financial market risk has increased due to a sharp increase in the Federal Reserve's use of repurchase agreements.

These agreements allow qualified financial institutions to trade bonds as a safety valve to avoid direct market intervention while maintaining interest rates. However, analysts cited by Reuters argue that this increase in repurchase agreements shows that the Fed has some room to increase liquidity.

Therefore, Bitcoin's positive performance on October 4 may depend largely on the macroeconomic landscape, as US fiscal conditions continue to improve.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.