Bitcoin's Price Rebound Driven by U.S. Monetary Policy Expectations and Short Position Liquidations

The recent rebound in Bitcoin's price can be attributed to shifting expectations for U.S. monetary policy and large-scale liquidations of short positions, rather than factors specific to the crypto market.

An analysis by CoinShares points to the July Federal Open Market Committee (FOMC) minutes as a key driver of this change in sentiment. The minutes contained more hawkish discussion than expected, leading to a decrease in expectations for additional rate hikes and an increase in short-term yields. However, long-term yields rose on concerns about worsening public finances.

CoinShares notes that the coexistence of easing expectations and fiscal concerns has historically been supportive for Bitcoin. Additionally, record-scale short-position liquidations amplified the gains, with large holders stopping their selling and resuming accumulation. Bitcoin traded clearly above its 200-day moving average.

The analysis also points to a potential shift in U.S. financial policy, which could have implications for Bitcoin's price. If fiscal authorities restrain long-term yields, financial conditions could ease again, raising the possibility that the U.S. Federal Reserve keeps rates high for longer or moves to additional hikes.