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stagflation

Stagflation Vs. Crypto: Can Bitcoin And Ether Weather The Storm?

Christian Encila
by Christian Encila
1 year ago
·
Posted in Crypto News
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

The cryptocurrency market is experiencing a period of volatility as investors grapple with conflicting forces. Renewed anxieties about stagflation in the US – a scenario of high inflation coupled with sluggish economic growth – are putting downward pressure on prices.

However, potential countervailing factors, including a liquidity injection from the US government and the launch of Hong Kong’s Bitcoin ETFs, are offering a glimmer of hope.

Related Reading: Akita Goes Digital: Japanese Society Uses Blockchain To Guard Dog Breeds

Crypto Prices Tumble On Stagflation Jitters

Bitcoin, the leading cryptocurrency, is currently trading around $62,559, representing a 1.5% decline in the past 24 hours. Ethereum (ETH) and other major digital assets are mirroring this trend, with ETH experiencing a 3.30% drop to $3,187. This price slump reflects growing concerns about a potential stagflationary environment in the US.

Source: CoinMarketCap

Stagflation is historically considered a “nightmare scenario” for investors, as it presents a difficult choice. High inflation erodes the value of cash holdings, while a stagnant economy discourages risk-taking behavior. Cryptocurrencies, often viewed as a risky asset class, tend to suffer in such situations.

US Economic Data Fuels Uncertainty

Recent economic data from the US is fueling these anxieties. The first-quarter GDP report revealed a significantly slower growth rate compared to the previous quarter, falling from 3.4% to a mere 1.6% annualized rate.

Meanwhile, the Personal Consumption Expenditures (PCE) price index, a key inflation metric for the Federal Reserve, painted a worrying picture. Prices rose to a 3.4% annualized rate in the first three months of 2024, a significant jump from the 1.8% witnessed in the final quarter of 2023.

Total crypto market cap currently at $2.2 trillion. Chart: TradingView

This combination of sluggish economic growth and persistent inflation raises concerns that the Fed might be less inclined to cut interest rates as previously anticipated. Lower interest rates are generally seen as positive for risk assets like cryptocurrencies, as they incentivize borrowing and investment. With rate cuts seemingly off the table, investors are adopting a cautious stance.

Stagflation: Potential Lifelines On The Horizon

Despite the prevailing negativity, there are some potential bright spots on the horizon for the crypto market. The US government’s fiscal strategy, which leverages the Treasury General Account (TGA) and the Reverse Repurchase Program (RRP), could inject over $1 trillion in liquidity into the financial system. This significant influx of cash could potentially bolster risk assets, including cryptocurrencies.

Related Reading: Crypto Crackdown In South Korea: New Unit To Hunt Down Criminals

Furthermore, the much-anticipated launch of Bitcoin exchange-traded funds (ETFs) in Hong Kong on April 30th is generating cautious optimism. These ETFs could attract new investors to the crypto market, particularly from Asia. However, restrictions on mainland Chinese investors participating in the trade could dampen the overall impact.

The Crypto Market: A Balancing Act

The near future of the crypto market hinges on the interplay of these opposing forces. The threat of stagflation and the possibility of a more hawkish Federal Reserve pose significant challenges. However, potential government intervention and the launch of Hong Kong’s Bitcoin ETFs could offer some much-needed support.

In the coming weeks, investors will be closely monitoring economic data and government actions to gauge the direction of the US economy and its potential impact on the crypto market.

Featured image from Pexels, chart from TradingView

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Christian Encila

Christian Encila

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Christian, a journalist and editor with leadership roles in Philippine and Canadian media, is fueled by his love for writing and cryptocurrency. Off-screen, he's a cook and cinephile who's constantly intrigued by the size of the universe.

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