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Navigating Cryptocurrency Markets Amidst U.S. Stagflation Concerns

Cryptocurrency markets are seeing declines as worries over U.S. stagflation resurface, posing a serious threat to risky assets.

Bitcoin (BTC), the primary cryptocurrency by market value, hovered around $62,400 currently, down by 2.5% over the past 24 hours, according to CoinmarketCap data . Ether (ETH) also experienced a 3% drop, trading at $3,200.

The market seems to be at a crossroads, with conflicting narratives on the horizon, debating which direction to head.

As outlined in a note by QCP over the weekend, the specter of stagflation—a scenario marked by high inflation and low economic growth—is looming large.

QCP pointed out, “The disappointing U.S. GDP figures indicate a slower economy, while the uptick in Core PCE suggests a persistent inflation challenge for the Fed.”

Recent U.S. GDP data revealed that the world’s largest economy expanded at an annualized rate of 1.6% in the first quarter of the year, down from the previous quarter’s 3.4% growth. Concurrently, the Personal Consumption Expenditures (PCE) Price Index, favored by the Fed to gauge inflation, showed a rise to a 3.4% annualized rate in the first three months of the year, up from 1.8% in the final quarter of 2023.

The combination of slower economic growth and stubborn inflation has diminished the likelihood of Fed rate cuts.

While most traders on Polymarket predict no rate cuts as the most probable outcome, with a 35% chance, the possibility of a single rate cut is gaining ground, now at 29% compared to 26% a week ago and 14% at the beginning of the month.

QCP also mentioned Janet Yellen’s fiscal approach, utilizing the Treasury General Account (TGA), which holds nearly $1 trillion in assets, and the Reverse Repurchase Program (RRP) with $400 billion, could infuse up to $1.4 trillion into the financial system, bolstering all risky assets.

As highlighted by Omkar Godbole last week, the upcoming quarterly refunding announcement from the U.S. Treasury is pivotal for sustaining or reducing the current TGA balance of $750 billion.

This $750 billion threshold in the TGA holds significant importance as it signals the U.S. government’s fiscal intentions to financial markets, profoundly impacting economic stability and growth.

Moreover, the impending launch of bitcoin exchange-traded funds (ETFs) in Hong Kong on April 30 has garnered attention from traders. However, news that mainland Chinese investors won’t have access to trade these ETFs has dampened the enthusiasm surrounding the launch.

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Disclaimer: Not Investment Advice

it’s crucial to understand that the information provided here is not to be construed as investment advice. The crypto market is dynamic and highly speculative, and decisions should be made based on thorough personal research and consideration of individual risk tolerance. Always consult with financial professionals and conduct your own due diligence before making any investment decisions. The intention of this exploration is to present insights and trends, not to provide specific investment recommendations.

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