Impact of U.S. Stagflation on Bitcoin and Ether: Monetary Policies and Market Trends Revealed

Impact of U.S. Stagflation on Bitcoin and Ether

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

The cryptocurrency market commenced this week in the red, amidst growing concerns regarding U.S. stagflation – a formidable threat to risk assets. Bitcoin (BTC), the dominant cryptocurrency, witnessed a 2.5% decline, hovering around $62,400 at press time. Ether (ETH), the second-largest cryptocurrency by market capitalization, followed suit with a 3% drop, trading near $3,200.

U.S. Stagflation Concerns Weigh on Crypto Markets

The specter of stagflation – a treacherous combination of soaring inflation and sluggish economic growth – has sent shivers down the spines of investors. The U.S. GDP report for the first quarter of this year revealed an annualized growth rate of merely 1.6%, a significant slowdown compared to the previous quarter’s 3.4% growth. Simultaneously, the personal consumption expenditures price (PCE) index, a key indicator of inflation, escalated to 3.4% in the first three months of the year, a sharp increase from 1.8% in the final quarter of 2023.

Impact on Monetary Policy

The stagflationary combination has diminished the likelihood of Federal Reserve (Fed) rate cuts. As per the prediction market platform Polymarket, the probability of no rate cuts remains the most plausible scenario at 35%. However, the possibility of a single rate cut has witnessed a gradual uptick, currently standing at 29% compared to 26% a week ago and 14% at the month’s outset.

Key Liquidity Factor: Treasury General Account

The fiscal strategy adopted by the U.S. Treasury, involving the Treasury General Account (TGA) and the Reverse Repurchase Program (RRP), could exert a significant impact on liquidity levels in the financial system. As reported by CoinDesk’s Omkar Godbole, the maintenance or reduction of the current TGA balance of $750 billion during the impending quarterly refunding announcement holds critical implications for the bitcoin bull market.

Hong Kong ETF Launch and China’s Absence

The launch of bitcoin exchange-traded funds (ETFs) in Hong Kong on April 30 initially sparked optimism. However, the news that mainland Chinese investors will be excluded from trading these ETFs has dampened the excitement surrounding the launch.

The crypto market remains at a pivotal juncture, with significant bullish and bearish narratives contending for dominance. The resolution of the stagflation debate and the outcome of the Treasury refunding announcement will likely sway the market’s trajectory in the coming days and weeks.

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