US financial condition at lowest in years, Bitcoin could continue to grow: Van Straten

Financial conditions in the US fell to their lowest level in August 2021, providing further tailwinds for businesses.

The Chicago Fed’s National Financial Conditions Index (NFCI) shows that financial conditions are the loosest since August 2021.

Bitcoin and the dollar remain linked at the hip with a 30-day correlation of 0.66.

Financial conditions in the U.S. are the loosest in three years, according to the Chicago Fed’s National Financial Conditions Index (NFCI), a weekly measure that takes into account factors such as leverage, debt and equity markets, and traditional banking.


US financial condition at lowest in years, Bitcoin could continue to grow: Van Straten



The readings provide insight into three specific areas: risk, credit, and leverage. In the week ended 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 looser than average, suggesting that liquidity is readily available. A positive reading, by contrast, means that capital is tighter than average, as was the case during the 2008 global financial crisis.


Zooming out, we are in the most fiscally loose period since we began collecting data in 1971. US headline inflation is at 2.6% annually, above the Federal Reserve’s 2% target since February 2021, with a 75 basis point interest rate cut possible. September and now at 4.75% have done little to curb investor appetite. Risk


The S&P 500, for example, has hit its 55th all-time high this year, adding 28% since the start of January, according to ZeroHedge. Bitcoin (BTC) is up 118%, and the total crypto market cap has more than doubled to $3.5 trillion, according to the total metric on TradingView.


Bitcoin and DXY rise together


Risk assets have an inverse relationship with the DXY index, which measures the US dollar against other major currencies. Typically, the index is considered strong when it is above 100. It has been above 106 since Donald Trump won the US presidential election.


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


As financial conditions loosen and total US debt hits a record $36.17 trillion, the largest cryptocurrency appears to be thriving with its ability to absorb liquidity, overriding a strong dollar.

Comments

  1. Risk assets have an inverse relationship with the DXY index, which measures the US dollar against other major currencies. Typically, the index is considered strong when it is above 100. It has been above 106 since Donald Trump won the US presidential election.

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