Bitcoin Drops Under Strong Economic Data and AI Bubble Concerns

Strong macroeconomic data, concerns about an artificial intelligence bubble, and an ongoing court case might be contributing to Bitcoin’s recent correction. 

Source: www.fool.com

After approaching the $68,000 mark on July 22, Bitcoin experienced a 6% drop over the next three days, erasing the previous week’s gains. However, from a bullish standpoint, the $64,000 support level has held firm. Buyers have stepped in to support Bitcoin’s market capitalization at $1.25 trillion, slightly above the £1.15 trillion value of the British pound. Nevertheless, Bitcoin bears still have macroeconomic data on their side, at least in the short term.

Bitcoin's Price Drop Coincides With The Decline In The US Stock Market

Bitcoin’s price decline aligns with the movement of Nasdaq index futures, which saw a 4.9% correction between July 23 and July 24. Traders are now questioning whether the factors driving the stock market's drop, particularly among tech stocks, justify the observed correlation with the cryptocurrency market. If concerns are primarily related to fears of an economic recession, Bitcoin’s long-term potential might present a buying opportunity. 

Semiconductor stocks and those linked to artificial intelligence infrastructure led the decline, with notable drops including Crowdstrike (CRWD) down 25.5% in a week, Super Micro Computer (SMCI) down 12.6%, GlobalFoundries (GFS) down 12.2%, NXP Semiconductors (NXPI) down 10.8%, and Intel Corp (INTC) down 10.5%. The market appears particularly worried about AI demand, given that current investments in the sector have yet to yield profitability.

UBS Global Research’s Stephen Ju cautioned investors that the benefits of AI investments in Google’s cloud platform are “difficult to discern” and are unlikely to appear on the revenue line before mid-2025. In the second quarter, Google's parent company reported $2.2 billion in spending on AI model development. Ju questions whether the returns on this investment will be compromised, as the company is expected to incur higher capital expenditures for another two years, according to exchange reports.

Strong Economic Data Diminishes Bitcoin's Appeal

Recent macroeconomic data has also contributed to investors' worsening sentiment. The United States economy grew at a 2.8% annualized rate in the second quarter, surpassing the market consensus of 1.9%. Additionally, continuing jobless claims, which measure the number of people in the US receiving benefits after an initial week of aid, declined on a seasonally adjusted basis. This indicator typically serves as a proxy for hiring, a more forward-looking metric.

Recent economic indicators signal the success of the US Federal Reserve's (Fed) strategy to curb inflation without causing a recession. The US central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since 2023, but analysts anticipate two to three rate cuts by the end of 2024. This data is somewhat negative for Bitcoin, as part of its appeal lies in being a hedge against inflation, a lower value of the US dollar, and decreased investor confidence in US Treasury securities. In other words, a strong economy makes alternative assets less attractive, regardless of the stock market's expectations for corporate earnings.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.