With US financial conditions the most resilient in years, Bitcoin could continue to thrive: Van Straaten

Financial conditions in the United States are the most resilient in three years, according to a report Federal Reserve Bank of Chicago National Conditions Index (NFCI)It is a weekly measure that takes into account factors such as leverage, debt, stock markets and traditional banking.

The readings provide insight into three specific areas: risk, credit and leverage. In the week ending November 22, the index fell to -0.64, a level not seen since August 2021 in the wake of the COVID-19 pandemic.

A negative reading indicates that financial conditions are more flexible than average which indicates that liquidity is readily available. In contrast, a positive reading means tougher than average conditions with difficulty accessing capital, as happened during the 2008 global financial crisis.

In short, we are in one of the most fiscally accommodative periods since data collection began in 1971. With headline U.S. inflation at 2.6% annually, well above the Federal Reserve’s 2% target since February 2021, it is possible that inflation to 75 basis points. Interest rate cuts since September and the interest rate at 4.75% have done little to curb investors’ appetite for risk.

For example, the S&P 500 rose to its 55th all-time high this year, adding 28% since the beginning of January, according to Zero hedging. Bitcoin (BTC) is up 118%, and the total cryptocurrency market cap has doubled to approach $3.5 trillion, according to Total scale On TradingView.

Risk assets tend to have an inverse relationship with the DXY index, which is a measure of the US dollar against Number of other major currencies. Typically, the index is considered strong when it exceeds 100. It has remained stable above 106 since Donald Trump won the US presidential election.

This makes Bitcoin’s rally particularly interesting, because it breaks the reversal behavior. The 30-day correlation between Bitcoin and the DXY index is 0.66 over the past seven years, one of the strongest levels for that period.

With financial conditions easing and total US debt reaching a record $36.17 trillion, the largest cryptocurrency appears to be thriving with its ability to absorb liquidity beyond the strong dollar.