Cryptocurrency markets are experiencing a downturn amid concerns over potential economic stagnation in the United States. According to data from CoinDesk Indices, Bitcoin, the largest digital currency by market capitalization, was trading at $62,400 on April 29, 2024, after declining 2.5% during the previous day. Ether was also down by 3%, trading at $3,200, while CoinDesk 20, an index tracking the most liquid cryptocurrencies, had dropped by 2.6% to 2,197 points.
The market sentiment seems to be at a critical juncture, with conflicting views on its future trajectory; analysts are weighing both optimistic and pessimistic scenarios.
According to the analysis provided by QCP, the possibility of stagflation, a period characterized by high inflation and low economic growth, is becoming increasingly concerning. An analysis over the weekend highlighted the concerns, citing weaker-than-expected GDP figures for the United States and elevated core PCE, indicating persistent inflationary pressures that are posing challenges for the Federal Reserve.
The latest report on U.S. GDP revealed that the country’s economy expanded by only 1.6% in the first quarter of 2024, a notable slowdown from the 3.4% growth recorded in the previous quarter. Concurrently, the personal consumption expenditures price (PCE) index, favored by the Fed as an inflation gauge, showed a jump to a 3.4% annual rate in the first quarter of this year, up from 1.8% in the preceding quarter of 2023.
This combination of sluggish economic growth and persistent inflationary pressures has diminished the likelihood of the Federal Reserve implementing interest rate cuts. Traders on platforms such as Polymarket are still largely betting against rate cuts, with 35% predicting a probability of it happening. However, the likelihood of a single rate cut is gaining traction, now standing at 29%, up from 26% last week and 14% earlier in the month.
Additionally, QCP suggests that fiscal strategies by Janet Yellen involving the Reverse Repurchase Program (RRP) and the Treasury General Account (TGA) could infuse up to $1.4 trillion into the financial system, potentially bolstering risk assets. The upcoming quarterly refunding statement by the U.S. Treasury is also a focal point for investors because it will indicate whether the TGA balance of $750 billion is maintained or reduced. This figure holds significance as it sends a strong indicator for financial markets on the government’s fiscal stance, influencing economic growth and stability.
In the meantime, traders are keenly following the launch of Hong Kong’s Bitcoin spot exchange-traded funds (ETFs). The initial excitement about the launch has subsided, however, once it was revealed that investors from mainland China will not have access to the ETFs.
Crypto mining companies such as Stronghold Digital Mining Inc. (NASDAQ: SDIG) and other players in the industry are likely to follow how events unfold in Hong Kong and internationally, especially in light of the recent Bitcoin halving.
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