The crypto markets are in the red due to renewed fears of stagflation in the US the worst case scenario for risky assets.
Bitcoin {{BTC}}, the leading cryptocurrency by market value, was trading near $62,400 at the time of writing, down 2.5% on a 24-hour basis, according to CoinDesk Indices data. Ether {{ETH}} was trading 3% lower at $3,200, and the CoinDesk 20 (CD20)a benchmark for the most liquid digital assets, fell 2.6% to 2,197 points.
The market currently appears to be on a precipice as it debates which direction to take, with significant bullish and bearish narratives on the horizon.
As QCP wrote in a note this weekend, the threat of stagflation – a period of high inflation and low growth – is very real.
'The weaker than expected [U.S.] GDP data points to a slower economy, while the higher Core PCE warns of an inflation problem that remains a thorn in the Fed's side,” QCP wrote.
Last week's US GDP report showed the world's largest economy growing at a rate of 2.5 percent annualized rate of 1.6% in the first quarter of this year, following 3.4% growth in the previous quarter. Meanwhile, the personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, showed prices rising in the first three months of the year from 1.8% in the final quarter of 2023 to 3.4% annualized .
The stagflationary combination of a slower growth rate and persistent inflation has further weakened the likelihood of Fed rate cuts.
Most traders on the prediction market platform Polymarket still see it no interest rate cuts as the most likely scenario, with a 35% chance of this happening, but the chance of one rate cut increasing, now at 29% versus 26% a week ago and 14% at the start of the month.
QCP also wrote that Janet Yellen's fiscal strategy, using the Treasury General Account (TGA) – which holds nearly $1 trillion in assets – and the Reverse Repurchase Program (RRP) with $400 billion, up to $1.4 trillion dollar of liquidity into the economy. financial system that pushes all risky assets upwards.
If Omkar Godbole of CoinDesk wrote last weekThe key to a continued bull market for bitcoin is the upcoming quarterly redemption announcement from the US Treasury Department, which maintains or reduces the current TGA balance of $750 billion.
This $750 billion in TGA is critical as it serves as an important signal to financial markets about the U.S. government's fiscal intentions, which have a profound impact on economic stability and growth.
Meanwhile, the launch of the Bitcoin Exchange Traded Funds (ETFs) in Hong Kong on April 30 also attracts the attention of traders. However, news that Mainland Chinese investors will not be able to trade the ETFs has reduced the bullishness of the launch.
