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According to recent analysis, Bitcoin (BTC) may be poised for a significant rally as financial conditions in the US ease.
The Chicago Fed's National Financial Conditions Index (NFCI), a key indicator that tracks conditions in money, debt and equity markets, provides weekly information on liquidity, credit availability and market risk. A negative NFCI value indicates looser-than-average financial conditions, creating an environment where liquidity is plentiful and capital flows more freely.
Fejau, host of the Forward Guidance Podcast, recently highlighted the negative correlation between NFCI and bitcoin in a series of posts on X (formerly Twitter). He argued that looser financial conditions often act as a catalyst for riskier assets like bitcoin, which tend to thrive in a “risky” environment.
Fejau’s analysis tracked this correlation across multiple Bitcoin market cycles. For example, in 2013, as financial conditions became more supportive, the BTC price rose from $100 in July to over $1,000 in November, coinciding with the NFCI falling to -0.80. A similar pattern emerged in late 2017, when bitcoin surged from $2,000 to $20,000 as conditions eased.
More recently, over the past twelve months, the NFCI has once again signaled looser financial conditions, contributing to Bitcoin’s rise from $25,000 to over $73,000 in March 2024, even before global central banks began cutting interest rates.
However, Fejau noted that other factors, such as the strength of the US dollar, also play a role in Bitcoin’s performance. A rise in the DXY index, which measures dollar strength, usually has a negative impact on BTC by making speculative investments less attractive.
The NFCI was recorded at -0.56 for the week ending September 13, indicating that financial conditions have eased further from the above-average loose level of the previous week.
*This is not investment advice.