3 - 5 minute read
Bitcoin’s recent trading at $25,846 reflects the cryptocurrency’s response to the release of the May Consumer Price Index (CPI). The CPI rose 4%, which was better than the projected 4.1% and April’s 4.9%. However, Bitcoin has been stagnant below $26,000 for the past four days. Investors set aside angst about Securities and Exchange Commission (SEC) lawsuits against crypto exchanges Binance and Coinbase, but they still awaited the latest inflation reading and Wednesday’s Federal Reserve interest rate decision.
A year ago, the CPI was raging at 8.6%, prompting the Federal Reserve to boost the Federal Funds rate by 75 basis points (bps) and sending risk-on assets spiraling. Today, the Fed seems likely to halt its year-long campaign of monetary hawkishness. The looming recession on the U.S.’s horizon may prove beneficial for crypto assets, even altcoins, some of which have lost up to 30% over the past week.
“With U.S. investors perhaps now largely shaken out of these assets, we could see the beginning of fresh investment in these tokens that is not at all linked to the US economy or US policies,” said Tim Frost, CEO of digital wealth platform, Yield App.
The SEC suits against Binance and Coinbase may have delivered “certainty” to markets by ending speculation about whether the agency would take legal action against two of the crypto industry’s most prominent businesses. The suits may also force the courts and regulators to settle on a designation for cryptos as securities, commodities, or otherwise.
Oliver Rust, head of product at independent inflation data aggregator Truflation, noted the decline in energy prices and overall inflation readings, and faintly encouraging signs that the hot jobs market was cooling. Unwelcome turns in those macroeconomic indicators have consistently unsettled crypto assets. But Rust also wrote warily that “the economy appears to be trending towards a quarter of negative growth at the very least.”
“The technical definition of a recession is two consecutive quarters of negative growth,” he wrote. “As such, if GDP growth continues declining in Q2, the U.S. will find itself on shaky ground. The Central Bank will be forced to divert its mission from reducing inflation to avoiding a recession, especially with the start of the 2024 US presidential election campaign just around the corner. With interest rates at current levels, we believe this is a realistic goal, but higher rates could end up being the last straw.”
Bitcoin and Ether comprise 80% of the $1T crypto market cap as investors flee altcoins. The second-largest crypto by market value, Ether, followed BTC’s lead, rising initially before returning some of its gains. Among the 19 tokens mentioned in either the Binance or Coinbase suits, or both, ALG and MATIC, the tokens of the Polygon and Algorand smart contracts blockchains, were recently up 0.3% and 0.8%, while AXIE, the native crypto of gaming platform Axie Infinity, fell slightly. Binance’s BNB token recently increased 3.3%.
The tech-heavy Nasdaq Composite and S&P 500 rose 0.8% and 0.6%, respectively. The yield on U.S. 10-year Treasurys rose to a still robust 3.8%, while Brent crude oil, a measure of energy markets, ticked down slightly to trade at $73 per barrel, well off its soaring heights above $112 a year ago.
The Bottom Line
The recent stagnancy of Bitcoin and Ether below $26,000 and $1,735, respectively, may be indicative of a cautious market. However, the SEC suits against Binance and Coinbase may bring certainty to markets, and even altcoins may benefit. Investors should keep an eye on GDP growth and interest rates as they could affect the future of the crypto market.
