Why Silver Rally Could Be Canary in the Coalmine for Bitcoin & Altcoins

Key Insights

• Silver’s parabolic run could be good news for Bitcoin (BTC USD), and divergence suggests that liquidity rotation may start soon.
• Stagflation risks highlight key reasons behind the silver and gold rally, but cryptocurrencies remained subdued.
• How risk-off sentiment is heavily tied to Japan could see major moves after 19 December.

Silver price action made headlines this week courtesy of its parabolic move and a new historic high above $64.

There could be more to the precious metal’s latest performance than meets the eye, as some analysts believe it may be a precursor to crypto’s upcoming rally.

Hawk-eyed analysts noted that Bitcoin (BTC USD) price action followed silver price with a bit of a lag in recent history. The correlation between silver and Bitcoin goes as far back as 2021.

If history repeats, then Bitcoin could be headed for a rally in response to the recent silver upside. However, this delay could take weeks or months to manifest in BTC’s price action.

This latest silver rally into new ATHs suggests that liquidity has been rotating away from gold. Perhaps an indication that liquidity may also rotate into other assets that are currently discounted.

Why Silver and Gold Have Been Rallying, but Bitcoin (BTC USD) Was Left Behind

Investors expected that the latest rate cut announcement by the FED and the end of QT would be favorable for risk-on assets. However, that was not the case, signaling that some other market forces were driving the market.

Bitcoin price retreated by over 4% after the FED’s meeting, while silver and gold rallied. One of the key reasons behind this outcome was stagflation fears.

The FED decided to cut rates while inflation was elevated. Moreover, this decision was against the backdrop of rising stagflation fears.

This may have discouraged investors from parking their money in risk-on assets such as Bitcoin and altcoins.

Instead, the preference for safe-haven assets benefited gold and silver, whose prices have been rallying this week.

The dynamics behind these different asset classes also suggest that liquidity rotation out of gold and silver may favor Bitcoin and altcoins.

Analysts have also been debating whether a stagflation environment would be bullish or bearish for Bitcoin (BTC USD).

The answer to that question may depend heavily on the state of the global monetary system. The latter could be a ticking time bomb courtesy of one major factor.

The Bank of Japan’s Upcoming Meeting will Determine the Fate of Global Liquidity

There’s no doubt that the macroeconomic situation has had a major impact on Bitcoin (BTC USD) and crypto prices recently. This may continue to be the case courtesy of the Bank of Japan (BOJ).

In the first week of August 2024, the crypto market crashed because of the Japanese Yen carry trade after the BOJ raised rates.

Recent reports revealed that the BOJ is contemplating raising rates, which could lead to further unwinding of the carry trade.

Global liquidity is heavily intertwined with the Japanese Yen, and Japan also happens to be one of the biggest holders of U.S. Treasuries.

If Japan raises rates and continues to sell U.S. Treasuries, then the markets may enter another tumultuous phase.

This outcome will likely lead to outflows from risk-on assets such as Bitcoin (BTC USD) and altcoins.

Analysts already believe that the upcoming BOJ meeting was the reason behind the recent crypto market crash after the Federal Reserve slashed rates.