Markets
why should crypto traders monitor US macro data?
Critical macro data was immediately released in the United States, and the cryptocurrency market responded instantly to the latest reports.
US officials released several vital reports on June 12, including inflation and interest rate data from the Federal Reserve. How has the crypto market reacted to the latest macro data?
Inflation slowed down
At the end of May, annual inflation in the United States slowed from 3.4% to 3.3%. This figure was below the consensus forecast of 3.4% and was the lowest since April 2021.
The indicator excluding food and energy prices increased by 0.2% compared to the previous month and 3.5% compared to May last year. The values were 0.3% and 3.6% a month earlier, respectively. Analysts expected annual rates to slow to 3.5% and monthly rates to 0.3%.
Macro data fueled Bitcoin’s growth, which increased by 2% in the first 15 minutes. The increase in Ethereum over the same period was 2.5%.
Source: Trading View
The Fed maintained its interest rate
The US Federal Reserve System sustained the interest rate range is 5.25–5.5% per year.
The cryptocurrency market reacted negatively to the decision. Bitcoin immediately fell below $69,000. Furthermore, most digital assets in the top 10 by capitalization showed slight negative dynamics, according to data from CoinMarketCap.
What were crypto traders waiting for?
Ahead of crucial inflation data and the Federal Reserve meeting, K33 Search Analysts said customers of unregulated crypto derivatives platforms remain highly exposed to risk, increasing the potential for long liquidations ahead of vital macroeconomic events.
Analysts estimate that open interest (OI) in Bitcoin perpetual contracts hit a one-year high after a two-week uptrend. Investors who made bullish bets during this period faced paper losses on their positions.
K33 noted that the significant inflows seen in BTC-ETF may only partially reflect arbitrage between the spot and futures markets amid aggressive trading on the CME. It’s more a question of demand than hedging.
Indicators for the crypto community to keep an eye on
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 USA. Changes in the base rate have a significant impact on the financial system and the stock market and are reflected in the value of several 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 key rate low, which encourages investment and reduces the overall savings rate. Because high-risk assets have higher return potential, they are more popular among investors.
During a recession or economic crisis, the Fed increases its key rate. This encourages economic agents to increase savings, sell high-risk assets and go to a “safe haven”, that is, to invest in conservative instruments whose profitability is growing.
The Fed rate is an essential factor, but it is not a determining factor in cryptocurrency prices.
Teasure obligations
The decline 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.
Risk assets, including cryptocurrencies, are on the verge of a major correction due to the actions of the Fed, which is committed to keeping current funding rates in the 5.25-5.5% range in response to the lack of progress towards of achieving its 2% inflation target.
Consumer Price Index
The CPI index measures the gradual change in the general price level of goods and services that a specific group of the population buys and uses. It reflects inflation or deflation in the economy, and monetary regulators often rely on this metric to make economic policy and financial stability decisions.
The consumer price index is seen as a measure of inflation. When the CPI reaches high values, fiat currencies like the US dollar lose their purchasing power.
An increase in the CPI can, theoretically, contribute to the growth in prices of the first cryptocurrency — it can act as a means of storing value that is not directly related to the economic policy of a given country.
However, in practice, the correlation between the CPI and the price of Bitcoin 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.
US national debt
Earlier this year, the US national debt surpassed $34 billion, a new record and an alarming sign for many experts. Analysts admit that Bitcoin could become the main defensive asset as the US national debt grows.
Forbes Experts observation that growing US government debt instills uncertainty in investors about the future of the US financial system, which leads to an increase in investment in cryptocurrencies and goldthus increasing the value of these assets.
Thus, Michael Hartnett, chief strategist at Bank of America, noted that spot Bitcoin ETFs that took Wall Street by storm last month are on track for a “boom year,” in part due to the collapse of the dollar.
“Flows into new spot bitcoin ETFs have suddenly accelerated over the past two weeks, fueling wild predictions that bitcoin could “steal gold’s crown” as the world’s “primary store of value.”
Forbes
Is traditional economics important for the crypto market?
US monetary policy has long had an indirect impact on the cryptocurrency industry. This has become especially obvious since 2018 when Bitcoin went into correction. The same situation happened during the 2022-2023 bear market.
As a rule, a reduction in the Key Rate encourages investments in higher risk assets, such as Bitcoin. Thus, an economic recession and then a rise in rates, on the contrary, encourage market participants to switch to more traditional and safer instruments.