why should crypto traders monitor US macro data?

Critical macro data were suddenly announced in the United States, and the cryptocurrency market responded immediately to the latest reports.

American officials released several vital reports on June 12, including the Federal Reserve’s inflation data and interest rates. How has the crypto market reacted to the latest macro data?

Inflation has slowed down

At the end of May, annual inflation in the USA slowed from 3.4 percent to 3.3 percent. This figure was below the consensus estimate of 3.4% and was the lowest since April 2021.

The indicator excluding food and energy prices increased by 0.2 percent compared to the previous month and 3.5 percent compared to May last year. The values ​​were 0.3% and 3.6% respectively a month ago. Analysts expected annual rates to slow to 3.5% and monthly rates to slow to 0.3%.

Macro data encouraged Bitcoin’s growth, rising by 2% in the first 15 minutes. Ethereum’s rise in the same period was 2.5%.

Source: TradingView Fed keeps interest rate

The US Federal Reserve System maintained its interest rate range at 5.25-5.5% annually.

The cryptocurrency market reacted negatively to the decision. Bitcoin instantly fell below $69,000. Moreover, according to CoinMarketCap data, most of the digital assets in the top 10 by capitalization showed slightly negative dynamics.

What were crypto investors waiting for?

Ahead of critical inflation data and the Fed meeting, K33 Research analysts said customers of unregulated crypto derivatives platforms are exposed to high levels of risk, increasing the potential for long liquidations ahead of crucial macroeconomic events.

Analysts estimate that open interest (OI) in Bitcoin perpetual contracts has risen to a one-year high following a two-week uptrend. During this period, investors who bet on the rise faced paper losses on their positions.

K33 noted that the observed significant inflows into BTC-ETF may only partially reflect arbitrage between the spot and futures markets in the aggressive underlying trading environment on the CME. It’s more about demand than hedging.

Indicators that will allow the crypto community to monitor the Fed interest rate and its impact on Bitcoin

The Federal Reserve System’s (Fed) base rate is the lending rate at which banks make short-term loans to each other. It is the main tool of monetary policy in the United States. Changes in the base interest rate have a significant impact on the financial system and stock market and are reflected in the values ​​of various asset classes, including Bitcoin and altcoins.

Why does Bitcoin price change when the Fed interest rate increases? During periods of economic growth, the Fed keeps the base interest rate low, which encourages investment and reduces the overall savings rate. High-risk assets are more popular among investors because their return potential is higher.

During an economic recession or crisis, the Fed increases the base rate. This encourages economic actors to increase savings, sell high-risk assets and go to a “safe haven”, that is, invest in conservative instruments with increased profitability.

The Fed rate is an important factor but not a determining factor in cryptocurrency prices.

treasury bonds

The decline in 10-year Treasury yields to 4.47% in early May from a November 2023 high has made higher-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 Fed’s actions pledging to keep current funding rates in the range of 5.25% to 5.5% due to lack of progress towards achieving goal 2. % inflation target.

Consumer price index

The CPI index measures the gradual change in the general price level of goods and services purchased and used by a particular population group. It reflects inflation or deflation in the economy, and monetary regulators often rely on this measure when making economic policy and financial stability decisions.

Consumer price index is viewed as a measure of inflation. When the CPI reaches high values, fiat currencies such as the US dollar lose purchasing power.

An increase in the CPI could theoretically contribute to the growth of quotes of the first cryptocurrency; It can act as a store of value that is not directly related to the economic policy of a particular country.

Source: Skrill

However, in practice, the correlation between CPI and Bitcoin price is not always positive and direct. The digital asset market is characterized by its volatility. Participant sentiment is influenced by a variety of factors, including technological innovation, regulatory actions, and macroeconomic situation.

For example, a high CPI could attract investors’ attention to Bitcoin. However, if this occurs during a period of news regarding regulatory restrictions affecting the industry, the expected price increase may not occur.

US national debt

At the beginning of this year, the US national debt exceeded $34 trillion; This is a new record and a worrying sign for many experts. Analysts agree that Bitcoin could become the main defensive asset as the US national debt increases.

Forbes experts state that increasing US government debt creates uncertainty for investors about the future of the US financial system, which leads to increased investments in cryptocurrencies and gold, increasing the value of these assets.

Source: We trust Bitcoin

Spot Bitcoin ETFs, which took Wall Street by storm last month, are heading for a “breakout year” due in part to the dollar’s collapse, said Michael Hartnett, chief strategist at Bank of America.

“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 “premier 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 particularly evident since 2018, when Bitcoin entered a correction. The same situation occurred in the 2022-2023 bear market.

As a rule, a decrease in the Key Rate encourages investments in riskier assets such as Bitcoin. Therefore, the economic recession and the subsequent interest rate increase, on the contrary, encourage market participants to turn to more traditional, safe instruments.