October 3, 2023 6:57 pm

ARK Invest warns Bitcoin’s bullish run may be delayed due to ongoing macro challenges.

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2023 has been a year filled with ups and downs for investor sentiment. While equities markets have defied expectations, a recent report from ARK Invest brings attention to potential economic challenges that could arise for the remainder of the year.

ARK Invest, a firm that manages $13.9 billion in assets and is led by CEO Cathie Wood, is known for its strong advocacy for cryptocurrencies. In collaboration with European asset manager 21Shares, ARK Investment first applied for a Bitcoin exchange-traded fund (ETF) in June 2021. Their latest request for a spot Bitcoin ETF, which is currently under review by the U.S. Securities and Exchange Commission (SEC), was filed in May 2023.

Despite ARK’s bullish view on Bitcoin, supported by research on the potential transformation of corporate operations through the fusion of Bitcoin and Artificial Intelligence, the investment firm acknowledges that a straightforward path for a Bitcoin bull run may not be in the cards due to the current macroeconomic conditions.

The newsletter from ARK highlights several reasons for their less optimistic scenario for cryptocurrencies, including interest rates, gross domestic product (GDP) estimates, unemployment, and inflation. One significant factor mentioned is the Federal Reserve’s implementation of a restrictive monetary policy for the first time since 2009, as indicated by the “Natural Rate of Interest.”

The “Natural Rate of Interest” refers to the theoretical rate at which the economy remains stable. ARK explains that whenever this indicator surpasses the “Real Federal Funds Policy Rate,” it puts pressure on lending and borrowing rates. With expectations of inflation continuing to slow down, the “Real Federal Funds Policy Rate” is anticipated to rise, widening the gap from the “Natural Rate of Interest.” This macroeconomic view outlined in the report contributes to their bearish outlook.

The report also focuses on the divergence between real GDP (production) and GDI (income). It states that GDP and GDI should closely align since income earned should equal the value of goods and services produced. However, recent data reveals that real GDP is approximately 3% higher than real GDI, indicating the likelihood of downward revisions in production data.

Another aspect of concern highlighted by ARK is U.S. employment data. The report notes that the government has consistently revised these figures downward for six consecutive months. Such revisions reflect a labor market that appears weaker than initially reported. Notably, the last time such recurring downward revisions occurred was in 2007, just before the onset of the Great Financial Crisis.

Furthermore, ARK points out the potential risk of “stagflation.” The reversal of the year-long trend of price discounts driven by increased consumer spending is cited as evidence. The Johnson Redbook Index, encompassing over 80% of the “official” retail sales data compiled by the U.S. Department of Commerce, shows that total same-store sales rebounded in August after 12 months of decline. This rebound suggests that inflation may be exerting upward pressure.

Considering the ongoing macroeconomic uncertainty, it remains unclear how cryptocurrency investors might respond if this trend of lower economic growth and higher inflation reinforces itself. Traditionally, such a scenario is considered unfavorable for risk-on assets.

In conclusion, ARK Invest’s report sheds light on potential economic challenges for the remainder of 2023. While the equities markets have shown resilience, factors such as interest rates, GDP discrepancies, employment data revisions, and the risk of stagflation could pose obstacles. Cryptocurrency investors will need to navigate these challenges as they assess the market in the coming months.

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Original Source: ARK Invest warns Bitcoin’s bullish run may be delayed due to ongoing macro challenges.

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