After an extended consolidation that has lasted a good six months, the premier digital asset is finally turning higher

If there was one thing that reshaped how we looked at trading cryptocurrencies, it was the approval of Bitcoin’s ETFs earlier this year - a major milestone for digital assets. And the price action that followed, was a testament to the fact. Although institutional interest had been slowly growing over the years in Cryptos, this decision by the U.S Securities and Exchange Commission (SEC) opened the floodgates of investment into Bitcoin.

Despite increasing interest before this decision, many skeptics considered Bitcoin and the associated cryptocurrencies as highly volatile speculative financial instruments, to say the least. While Bitcoin may still be a little more volatile than traditional financial instruments, it has also now begun to present itself as an alternative asset of interest and possibly a hedge against other systemic economic risks.

Since early September, Bitcoin has outperformed the benchmark index S&P 500 (chart below), reigniting interest in the volatile yet promising world of cryptocurrencies. This surge can be attributed to a combination of factors, including rising institutional interest, global economic uncertainties, and the increasing acceptance of Bitcoin as a digital gold. But before we analyze the chart further, just a quick recap of the price action since BTC ETFs approval.

Ever since peaking around $74k in March, Bitcoin entered an extended consolidation phase that lasted most of the summer. The price fluctuated between $50,000 and $70,000, with the market showing signs of indecision and sideways movement. This consolidation phase was the longest in Bitcoin's history during a halving year, lasting for about six months.

Although September is historically considered the weakest month for investor returns, Bitcoin started to show signs of emerging from the consolidation phase. The catalyst this time around was the jumbo rate cut of 50 basis points by the Federal Reserve. Bitcoin being more sensitive to changes in macroeconomic conditions took off. While it was a positive indicator for U.S equities too, gains in the S&P 500 were dwarfed by Bitcoin.

For the most part ever since, Bitcoin’s gains have been much higher than the benchmark index. Bitcoin currently trades around $67k after three robust days of inflows for bitcoin exchange-traded funds (ETFs). The divergence between returns has widened even further since the Chinese financial authorities announced massive stimulus measures to prop up their economy.

Having said all this, risks remain that could derail the recent rally in Bitcoin. Any economic indicators that hint at the Federal Reserve potentially reversing course on its rate-cutting plans, or suggest the looming threat of a recession, could disrupt the current Bitcoin rally. Additionally, a sudden reallocation of capital from crypto assets into alternative markets, such as Chinese equities, may pose further downside risks for Bitcoin's upward momentum.

So far this has not happened. Historically speaking, the last two months have been really bullish for cryptocurrencies, and unless there is a macroeconomic shock that can rock this rally, Bitcoin and its associated cryptos seem set to end the year on a high note. Keep in mind, the upcoming U.S elections are a major risk event with the potential to upend the existing trends. Keeping our fingers crossed.

Originally published at http://khanfk.substack.com.