Bitcoin Surges 50%+ When Leverage Low, Retail Sales Strong, Fed Hawkish

Bitcoin has historically shown a tendency to rally significantly when specific market conditions align. These conditions include low leverage in the crypto market, stronger-than-expected retail sales data, and hawkish signals from the Federal Reserve. In three separate instances, Bitcoin's price surged by at least 50% over a seven-week period when these factors converged.

In early 2024, Bitcoin's price climbed from $40,000 to $73,500 within seven weeks. This rally was preceded by a period of low leverage, as indicated by a perpetual futures funding rate of 4% per year. Additionally, US retail sales data for December 2023 exceeded expectations, rising 0.6% month-over-month compared to the 0.4% forecast. Federal Reserve Chair Jerome Powell's press conference on January 31, 2024, further supported the rally by signaling a tighter monetary stance with no immediate interest rate cuts.

A similar pattern was observed in early 2023, when Bitcoin's price rose from $16,700 to $25,100 over seven weeks. Prior to this rally, Bitcoin had consolidated below $18,000 for two months, resulting in minimal demand for leveraged long positions. The funding rate on Binance surged to 50% within four days, coinciding with stronger-than-expected retail sales data for January 2023, which rose 3% month-over-month. Fed Chair Powell also suggested a tighter monetary policy to combat inflation during his speech at Sveriges Riksbank on January 10, 2023.

Another significant rally occurred from July 20, 2021, to September 7, 2021, when Bitcoin gained 76%. During this period, the annualized Bitcoin funding rate jumped from 0% to 37% in two weeks, while US retail sales data for June 2021 surprised economists by increasing 0.6%. Fed Chair Powell's remarks at the Jackson Hole Economic Symposium on August 27, 2021, indicated a potential reduction in central bank asset purchases to curb inflation.

The common thread linking these significant rallies is a reduction in expectations for expansionary Federal Reserve policy and initially low leverage demand from Bitcoin bulls. When these factors coincide with robust retail data, they create ideal conditions for a Bitcoin bull run. Traders tend to remain cautious ahead of possible economic downturns, and the alignment of these factors can signal a shift in market sentiment.

Looking ahead, upcoming speeches from Fed Chair Powell and key economic indicators, such as US retail sales data and the Beige Book release, could provide further insights into Bitcoin's potential price movements. Monitoring these factors will be crucial for investors and traders as they navigate the volatile crypto market.