Silver Hits New Peaks, Up 100% Yearly — Will Cryptocurrencies Follow Suit?

Silver Hits New Peaks, Doubling This Year — Will Cryptocurrencies Follow Suit?

In the realm of precious metals, silver is shining brightly, while gold also gains momentum. With these developments, many investors are curious whether cryptocurrencies might be poised for a breakthrough as well.

Key Takeaways:

Silver has surged, increasing over 100% this year, driven by expectations of interest rate cuts, a weaker dollar, and heightened industrial demand.
Bitcoin has experienced a decline of more than 30% from its peak, facing its most substantial drop since 2022.
Data on ETF outflows and on-chain losses indicate pressure in the cryptocurrency market, contrasting the renewed appeal of precious metals among investors.

On Monday, the price of gold rose to its highest point in six weeks as investors put faith in a potential cut in US interest rates, pushing spot prices above $4,240 an ounce.

In a more striking move, silver soared to a record high near $57.86 before retreating slightly, marking an impressive more than 100% increase this year.

What’s Behind Silver’s Record Performance?

The recent surge in silver prices is attributed to shifting market expectations regarding looser monetary policy. Soft economic data from the US and dovish comments from Federal Reserve officials have led many to speculate that rates could be lowered as soon as this month.

Futures markets indicate a strong probability of a rate cut, compounded by a drop in the dollar to a two-week low, making metals more affordable for international buyers.

Experts also highlight a rise in industrial demand for silver, which, in addition to its traditional use as a safe haven, is boosting its price as trust in paper assets wanes.

Meanwhile, the sentiment in the cryptocurrency world is quite different.

Bitcoin has fallen over 30% from its October peak around $126,000, now trading at approximately $86,000, as noted by Linh Tran, a Market Analyst at XS.com. November alone witnessed a significant double-digit decline, marking it as the worst late-year performance since the bear market of 2022.

In the past six weeks, the broader cryptocurrency market has lost nearly $1 trillion in value, with Bitcoin contributing over $400 billion to that downturn.

Analysis of Institutional Outflows and Market Stress

The trend in institutional flows tells a parallel story. In November, US spot Bitcoin ETFs faced around $3.5 billion in net outflows, the largest monthly exit since the products were approved last year.

Investors are utilizing these ETFs as a swift exit strategy amidst rising macroeconomic risks, reversing the earlier trend that had helped to amplify upward momentum during the rally.

Signs of distress are also evident on-chain, with realized losses among short-term holders surging to levels last recorded in late 2022. This indicates a capitulation trend among newer market entrants and leveraged traders.

Potential Recovery Signals for Bitcoin

Despite this turmoil, there are indications that the outflow may be slowing, according to Tran. Towards the end of November, ETFs noted a slight return to net inflows, adding approximately $70 million.

While this amount is minor compared to previous exits, it suggests that the intense selling pressure might be waning.

Currently, ETFs collectively hold close to $120 billion in Bitcoin, comprising about 6.5% of the network’s market value, which shows that the long-term institutional interest continues to be strong.

So, does silver's recent breakout hint at a potential recovery for cryptocurrencies? Historically, when monetary policy becomes more accommodating, it benefits all risk assets — but timing is crucial.

Typically, metals react first to changes in rate expectations, while digital assets tend to follow once liquidity improves.

As it stands, Bitcoin seems to be trapped in a fluctuating range between $80,000 and $90,000, with a potential dip towards $70,000 if the macroeconomic situation worsens.

“In the medium and long term, should the Fed indicate clearer intentions for monetary easing, and if macro risks diminish, alongside ETF flows shifting from net outflows to neutral or net inflows, Bitcoin could have the opportunity to initiate a new upward trend,” Tran stated.