Crypto Traders: The U.S. government revealed crucial macro statistics, and the bitcoin market reacted immediately. On June 12, U.S. officials published a slew of important information, including inflation and interest rate statistics from the Federal Reserve. How did the most recent macro data affect the cryptocurrency market?
Inflation has Slowed
May saw a slight slowdown in annual inflation in the U.S., falling from 3.4% to 3.3%. At its lowest point since April of 2021, this number fell short of the 3.4% predicted by the consensus.
A 0.2% increase from the previous month and a 3.5% increase from May last year were recorded by the index that does not include energy and food prices. These numbers were 0.3% and 3.6% higher one month ago. Analysts predicted a yearly slowdown to 3.5% and a monthly slowdown to 0.3%. The first fifteen minutes saw a 2% surge in Bitcoin value, driven by macro data. Coindesk had a 2.5 percent increase during the same time frame.
The Fed kept its Interest Rate
With an annual range of 5.25 to 5.5%, the U.S. Federal Reserve System kept interest rates steady. Following the ruling, the Bitcoin market took a nosedive. Shortly after, Bitcoin’s price dropped below $69,000. According to CoinMarketCap, most top-ten digital assets by capitalization had modest negative dynamics.
What were Crypto Traders Waiting for?
K33 Research found that unregulated crypto traders’ derivatives platform clients are vulnerable, which might lead to extended liquidations before macroeconomic events like the Federal Reserve meeting and inflation statistics.
Following a two-week rally, analysts predict that open interest (O.I.) in Bitcoin perpetual contracts has reached a one-year high. During this time, investors who bet on the bull market saw their positions shrink to nothing. According to K33, active-based trading on the CME might be causing some of the massive BTC-ETF inflows arbitrage between the spot and futures markets. Demand, not hedging, is the primary concern.
Indicators for Crypto Community to Keep an Eye on
Fed Rate and Impact on Bitcoin
The lending rate at which banks lend to each other for short-term periods is known as the Federal Reserve System’s (Fed) base rate. It serves as the primary tool for the United States’ monetary policymakers. Bitcoin and altcoin values, among others, are sensitive to changes in the base rate because of the ripple effect they have on the stock market and the entire financial system.
Why does an increase in the Federal Reserve’s interest rate affect the price of Bitcoin? When the economy is doing well, the Federal Reserve keeps the base rate low to encourage investment and decrease the savings rate generally. More people are willing to put their money into high-risk investments because of the more significant returns they could earn.
In times of economic downturn or crisis, the Federal Reserve will hike the base rate. This prompts economic actors to raise their savings rates, divest from risky assets, and seek a “haven”—that is, to invest in conservative instruments with increasing profitability. Although it has a significant role, the Fed rate does not determine the price of cryptocurrencies.
Treasury Bonds
The drop in 10-year Treasury yields from a November 2023 high to 4.47% in early May has made high-risk assets such as technology stocks and cryptocurrencies more attractive to investors. Crypto Traders and other risk assets are poised for a significant correction due to the Federal Reserve’s decision to keep funding rates between 5.25 and 5.5% in reaction to the failure to reach its inflation objective of 2%.
Consumer Price Index
The Consumer Price Index can trace the cost of living for a specific demographic. Monetary regulators use this inflation or deflation statistic to assess economic policy and financial stability.
One indicator of price increases is the consumer price index. Fiat currencies, such as the dollar, experience a decline in purchasing power when the CPI reaches high numbers. An increase in the consumer price index (CPI) can boost the value of the first cryptocurrency since it provides a store of value independent of national economic policies.
In practice, there is not always a positive and apparent association between CPI and Bitcoin’s priceings in value, which are typical of the digital asset market. The sentiment of participants, new technologies, regulatory measures, and the overall economy are some elements that impact it. A high CPI, for instance, might pique the interest of potential Bitcoin investors. However, if this occurs while reports of industry-wide regulatory limits are making headlines, the anticipated price hike might not materialize.
U.S. National Debt
At the start of the year, the U.S. national debt topped $34 trillion, alarming many analysts. Experts agree that Bitcoin may become the primary hedge as the US debt rises.
Experts at Forbes point out that investors are understandably worried about the stability of the U.S. financial system in light of the ever-increasing national debt. This, in turn, causes a surge in the value of assets like gold and cryptocurrencies. So, according to Michael Hartnett, chief strategist of Bank of America, the spot Bitcoin ETFs that have been making waves on Wall Street recently are headed for a “blowout year,” partly due to the dollar’s decline.
Can Classical Economics Help the Crypto Market?
The Bitcoin business has long been indirectly influence by U.S. monetary policy. This is particularly clear because Bitcoin experienced a correction in 2018. During the bear market of 2022–2023, the same thing occurred. Investment in risky assets, like Bitcoin, is typically stimulated when the Key Rate is lower. Market players are prompt to revert to more conventional and secure instruments in a recession.