Bitcoin
Bitcoin and Ethereum Recover After Week of Brutal Losses – Here’s Why – DL News
- Crypto markets were bullish after last week’s carnage.
- Fed Chairman Powell said a rate hike is “unlikely.”
- Concerns about high inflation and unemployment have passed, says analyst.
Crypto markets have recovered losses following last week’s crash which saw Bitcoin fall to $56,000.
The renewed optimism comes in a context of slowing employment growth – a possible sign of slowing inflation – and hopes of rate cuts later this year.
Today, the largest cryptocurrency is back trading at just over $65,000. The second-largest Ethereum is up 11% since its low last Wednesday.
Overall, the broader cryptocurrency market has added around $200 billion, according to CoinGeckosince Federal Reserve Chairman Jerome Powell spoke on May 1.
He signaled that a rate rise – when the central bank raises interest rates and increases borrowing costs for banks and businesses – would be “unlikely.”
Still, “the path is far from clear” for the Federal Reserve to begin cutting interest rates soon, according to Noelle Acheson, author of the “Crypto is Macro Now” newsletter.
Interest rates in the United States have risen to historic highs as the Federal Reserve battles runaway inflation fueled by the COVID-19 pandemic. High interest rates also increase the amount people earn from their bank holdings, another incentive to save money rather than spend it.
Rate increases are therefore less beneficial for riskier stocks and investments such as cryptocurrencies, as seen in last week’s dramatic drop in Bitcoin and Ethereum.
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In the first quarter, economic growth in the US slowed to its lowest level in almost two years. The slowdown has been partly attributed to a moderation in consumer spending and a growing trade deficit, or when a country imports more goods than it exports.
When rates are higher, business loans become more expensive, which discourages business owners from expanding or hiring. The ripple effects could also slow the overall economy.
Recent employment data released on Friday, for example, revealed the slowest job growth in six months and lower than last year’s average monthly gain.
Stagflation concerns ‘behind us’
High unemployment combined with inflation and slowing economic activity would spell even more trouble for Powell.
Powell’s main goal currently is to avoid stagflation, an economic climate in which the economy continues to face high inflation during a recession.
According to crypto venture capital firm Ryze Labs, this situation appears less likely to occur.
“With rate hikes off the table and markets already pricing in little to no cuts for 2024, we believe this bodes constructively for risk assets,” Ryze Labs analysts said. DL News.
“The worst of the stagflationary headwinds may be behind us,” they said.
Crypto Market Movers
- Bitcoin is up 2.6% in the last 24 hours and is trading at $65,200.
- Ethereum jumped 1.9% to $3,200.
What are we reading
Sebastian Sinclair is a market correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.