Bitcoin, Ether Nurse Losses as U.S. Stagflation Fears Grip Market

The crypto markets are experiencing a downturn as Asia’s business week begins, with Bitcoin trading near $62,400 and Ether at $3,200. The market is on the brink of making a decision between bullish and bearish narratives.

The cryptocurrency market is experiencing losses as investors grow anxious over potential stagflation in the United States, a economic condition that could negatively impact risky investments like cryptocurrencies.

The market is currently teetering on the edge of making a decision between bullish and bearish trends, with compelling arguments for both perspectives emerging.

In a recent memo penned down during the weekend, QCP warned about the imminent danger of experiencing stagflation, a condition marked by both elevated inflation rates and sluggish economic growth.

As an analyst, I would interpret the weaker-than-expected U.S. Gross Domestic Product (GDP) growth as a sign of a slower-moving economy. On the other hand, the upward trend in the Core Personal Consumption Expenditures (Core PCE) price index serves as a reminder of an ongoing inflation challenge that the Federal Reserve must address.

As a researcher studying economic trends, I’ve analyzed the recently released U.S. Gross Domestic Product (GDP) report for the first quarter of this year. The economy expanded at an annualized rate of 1.6%, which represents a deceleration from the previous quarter’s robust growth of 3.4%. Inflation, as measured by the Personal Consumption Expenditures Price Index (PCE), also saw a significant increase. Prices grew at a 3.4% annualized rate during the first three months of the year, marking a notable jump from the 1.8% annualized rate recorded in the last quarter of 2023.

The phenomenon of slower economic growth coupled with persistently high inflation has decreased the likelihood of the Federal Reserve lowering interest rates.

On Polymarket’s prediction market platform, the majority of traders currently believe that the base rate will remain unchanged, with a probability of approximately 35%. However, there is a growing belief that one rate cut may occur, as the likelihood of this scenario has increased from 26% a week ago to 29%. At the beginning of the month, this possibility was only seen as having a 14% chance.

QCP stated that Janet Yellen’s fiscal approach, utilizing the Treasury General Account (TGA) containing nearly $1 trillion in assets and the Reverse Repurchase Program (RRP) with around $400 billion, has the potential to infuse up to $1.4 trillion into the financial market, boosting all risk assets.

Last week, Omkar Godbole from CoinDesk pointed out that the US Treasury’s upcoming quarterly refunding announcement could be instrumental in sustaining a bull market for bitcoin. The significance lies in whether this announcement will maintain or decrease the existing TGA (Treasury General Account) balance of approximately $750 billion.

As a crypto investor, I can tell you that the $750 billion number mentioned in the Taxpayer Grace Act (TGA) holds great significance for financial markets. This figure acts as a powerful indicator of the U.S. government’s fiscal plans, with far-reaching consequences for economic stability and growth.

As a crypto investor, I’m keeping a close eye on the upcoming launch of Bitcoin ETFs in Hong Kong on April 30. The excitement around this event is palpable in the market. However, the announcement that mainland Chinese investors will be restricted from trading these ETFs has somewhat dampened my initial bullishness towards the launch.