Critical macro data was released immediately in the United States and the cryptocurrency market responded immediately to the latest reports.
On June 12, American authorities released several important reports, including inflation and interest rate data from the Federal Reserve. How has the cryptocurrency market reacted to the latest macro data?
Summary
Inflation has slowed
At the end of May, annual inflation in the United States fell from 3.4% to 3.3%. This figure is below consensus forecasts of 3.4% and is the lowest since April 2021.
The indicator, excluding food and energy prices, increased by 0.2% compared to the previous month and by 3.5% compared to May last year. A month earlier the values were 0.3% and 3.6% respectively. Analysts had expected annual rates to slow to 3.5% and monthly rates to 0.3%.
The macro data spurred Bitcoin’s growth, which increased by 2% in the first 15 minutes. Ethereum’s rise in the same period was 2.5%.
Source: TradingView
The Fed maintained its interest rate
The US Federal Reserve System has maintained the interest rate range at 5.25–5.5% per annum.
The cryptocurrency market reacted negatively to the decision. Bitcoin immediately fell below $69,000. Furthermore, according to CoinMarketCap data, most of the digital assets in the top 10 by capitalization showed a slight negative dynamic.
What were cryptocurrency traders waiting for?
Ahead of crucial inflation data and the Federal Reserve meeting, analysts at K33 Research said clients of unregulated crypto derivatives platforms remain highly exposed to risk, raising the potential for long liquidations ahead of macroeconomic events vital.
Analysts estimate that open interest (OI) in Bitcoin perpetual contracts has risen to a one-year high following a two-week uptrend. Investors who placed bullish bets during this period faced paper losses in their positions.
K33 noted that the significant inflows observed into the BTC-ETF may only partially reflect arbitrage between the spot and futures markets amid aggressive floor trading on the CME. It’s more about demand than coverage.
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Indicators to watch for the crypto community
Fed rate and impact on Bitcoin
The Federal Reserve System (Fed) base rate is the lending rate at which banks make short-term loans to each other. It is the main instrument of monetary policy in the United States. Changes in the base rate have a significant impact on the financial system and the stock market and are reflected in the value of various asset classes, including Bitcoin and altcoins.
Why does the price of Bitcoin change when the Fed rate increases? During periods of economic growth, the Fed keeps the base rate low, stimulating investment and reducing the overall savings rate. Because higher-risk assets have higher return potential, they are more popular among investors.
During a recession or economic crisis, the Fed increases the base rate. This encourages economic agents to increase savings, sell high-risk assets and take refuge in a “safe haven”, i.e. to invest in conservative instruments whose profitability is growing.
The Fed rate is an essential factor, but it is not a determining factor for cryptocurrency prices.
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Treasury bonds
The decline in 10-year Treasury yields from their November 2023 high to 4.47% in early May has made higher-risk assets such as technology stocks and cryptocurrencies more attractive to investors.
Risky assets, including cryptocurrencies, are on the verge of a severe correction due to the actions of the Fed, which has pledged to keep current lending rates between 5.25 and 5.5% in response to the lack of progress towards achieving its objectives. Inflation target %.
Consumer price index
The CPI index measures the gradual change in the general price level of goods and services that a specific population group purchases and uses. It reflects inflation or deflation in the economy, and monetary regulators often rely on this parameter to make economic policy and financial stability decisions.
The consumer price index is seen as a measure of inflation. When the consumer price index reaches high values, fiat currencies such as the US dollar lose their purchasing power.
An increase in the CPI can theoretically contribute to the growth of the prices of the first cryptocurrency: it can serve as a means of storing value that is not directly related to the economic policy of a particular country.
Source: Skrill
However, in practice, the correlation between CPI and Bitcoin price is not always positive and direct. The digital asset market is characterized by its volatility. It is influenced by several factors, including participant sentiment, technological innovation, regulatory actions and the macroeconomic situation.
For example, a high CPI can attract investors’ attention to Bitcoin. However, if this happens against the backdrop of news about regulatory restrictions affecting the industry, the expected price increase may not occur.
American national debt
Earlier this year, the U.S. national debt topped $34 trillion, a new record and an alarming sign to many experts. Analysts admit that Bitcoin could become the main defensive asset as the US national debt grows.
Forbes experts note that the growing US government debt instills uncertainty in investors about the future of the US financial system, which leads to an increase in investments in cryptocurrencies and gold, thus increasing the value of these assets.
Source: We trust Bitcoin
Thus, Michael Hartnett, chief strategist at Bank of America, noted that the spot Bitcoin ETFs that have taken Wall Street by storm over the past month are on track for a “breakout year,” in part due to the collapse of the dollar.
“Inflows into new spot bitcoin ETFs have suddenly accelerated over the past two weeks, fueling wild predictions that bitcoin could “steal the golden crown” as the world’s “premier store of value.”
Forbes
Is Traditional Economics Important to the Cryptocurrency Market?
US monetary policy has long had an indirect impact on the cryptocurrency industry. This has become especially evident since 2018, when Bitcoin entered a correction. The same situation occurred during the 2022-2023 bear market.
As a rule, a decrease in the key rate stimulates investments in riskier assets, such as Bitcoin. Therefore, an economic recession and then a rise in rates, on the contrary, encourages market participants to switch to more traditional and safe instruments.
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