Bitcoin price continues to close below $64,000, and the anticipated turnaround has yet to begin. There are many valid reasons feeding investors’ concerns, leading to some transferring their investments to other altcoins at a loss. Investors worried about the deepening decline are not unjustified. So, how do QCP analysts read the current situation in the cryptocurrency markets?
Cryptocurrency Analyst Commentary
The US GDP grew by 1.6% in the first quarter of 2024. While PCE data came in negative, employment figures remained strong. Inflation data has been poor for months, and despite Federal Reserve members claiming this stickiness is temporary, their credibility is weakening.
The Fed’s dream of a soft landing no longer seems feasible. QCP analysts have written the following about the current situation in cryptocurrencies;
“This week, some worrying data came from the US. Weaker than expected GDP data indicates further economic stagnation, while the rise in Core PCE points to ongoing inflation issues troubling the Fed.
If GDP continues to weaken and inflation remains sticky, the US could enter a stagflation scenario (negative GDP growth and high inflation), but this is not yet our base case.
In light of this data, markets are currently pricing in one interest rate cut in 2024. This is very different from the seven cuts priced at the beginning of the year and three in March.”
Will Cryptocurrencies Fall?
We are moving from the overly optimistic conditions of March to a scenario where even the Fed’s predictions for rate cuts are falling short. If interest rates are reduced much more slowly, this could lead to larger drops in cryptocurrencies. QCP analysts believe that selling opportunities at short-term peaks (such as $64,000) could be considered.
“However, at this point, fiscal policy, which will be the main driver of liquidity and asset performance, could become much more important than monetary policy. The US Treasury General Account (TGA), following this year’s major US treasury issuances and strong tax revenues, holds nearly one trillion US dollars. The US Government could choose to spend the money in the TGA, potentially injecting one trillion dollars of liquidity into the financial system. Considering how close we are to the US elections, this seems likely.
Also, the Quarterly Refunding Announcement (QRA) scheduled for May 1st could see higher issuances of short-term US bonds. This would drain the already $400 billion RRP, increasing liquidity.
Yellen had previously used the QRA in October 2023 to influence short-term interest rates. We saw 2Y bond yields peak at 5.2%, stocks bottom out, and then race to new highs after October 2023. It’s very likely that this action could be repeated to some extent. Between the TGA and RRP, there is a potential $1.4 trillion in liquidity ready for injection. This could be the main driver of a rise towards the end of the year.
Despite major macro movements and conflict headlines in recent weeks, volatility and funding have been crushed. The best strategy might be to implement some cheap structures at the top, lean back, and watch how everything unfolds.”
