The macroeconomic environment has significant implications for the cryptocurrency market. According to a recent video analysis, several key trends are unfolding that could shape crypto’s performance in the coming months.
Global Recession Fears Mounting
Concerns about a potential global recession are building as major economies like the UK, Japan, Germany, and China show signs of slowing growth or contraction. While the US economy remains resilient for now, an inverted yield curve suggests recession risks are rising. If a recession materializes, it could spur more accommodative monetary policies from central banks that would benefit crypto. However, a recession could also dampen risk appetite broadly, weighing on speculative assets like crypto.
Inflation Moderating but Debate Continues
Inflation data shows early signs of moderating, with the Fed’s preferred core PCE measure declining. However, Shelter costs remain sticky and the accuracy of Owners’ Equivalent Rent data is debated. Continued inflation declines would likely prompt Fed rate cuts, favorable for crypto. But if Shelter costs re-accelerate, the Fed may stay hawkish, tightening financial conditions. The path of inflation remains uncertain and hotly debated.
Dollar Strength Building
The US dollar is strengthening based on economic outperformance and foreign central bank easing. Dollar strength tends to pressure emerging market economies and raises risks of FX interventions like from the BOJ to weaken the yen. These dynamics could increase volatility in currency and bond markets. Crypto would likely struggle if the dollar continues appreciating.
Stocks Buoyant but Risks Growing
Despite recession worries, stocks have rallied in 2023 led by tech. However, signs of deterioration are evident. Earnings growth is slowing, valuations look extended, and previous leaders like Apple are lagging. If stocks roll over, crypto could face selling pressure. But if the bull run continues, risk appetite may support crypto prices.
In summary, the macro backdrop contains both supportive and challenging elements for crypto. Key variables like inflation, the dollar, and risk asset performance remain uncertain. As such, volatility and two-sided price action are likely in the coming months. But macro trends still appear more constructive than destructive for crypto as we enter 2024.
