The cryptocurrency market has been a roller coaster ride, and the latest report from Coinbase’s research team suggests that the US economy may have reached its peak in the second quarter of 2024. This news could have significant implications for retail investors, who may be hesitant to take on new stock or crypto positions if the economy begins to slow down.
Recession Indicators Remain, Despite Rate-Cut Optimism
According to the Coinbase report, the US unemployment rate rose to 4.1% in June, and the Treasury yield curve has been inverted since mid-2022, a historically strong recession indicator. The analysts believe that the Federal Reserve will likely cut interest rates starting in September, but this may not be enough to boost the markets if there’s a fear of a more marked slowdown.
“That is, retail investors will likely be reluctant to enter new stock or crypto positions if the U.S. economy falls into recession,” the analysts added.
However, the report also pointed to the upcoming November US elections, which could lead to more fiscal expansion, regardless of the outcome. This could be a “strong incentive to buy bitcoin as an alternative to the traditional financial system,” according to the Coinbase analysts.
Potential Stimulus in China
The report also touched on the economic conditions in China, where the nation’s consumer price index (CPI) notched up 0.2% in June, below economist’s forecasts. This indicates weak domestic demand, which could prompt Chinese monetary policy officials to consider economic stimulus measures.
- The National Bureau of Statistics of China reported that the country’s CPI increased by 0.2% in June, cooler than the preceding three months and below the 0.4% increase expected by economists.
- Recent import data also showed a weaker domestic market, with imports shrinking 2.3% – a four-month low.
- These dampening internal market conditions could lead to discussions among Chinese policymakers about the need for economic stimulus.
The upcoming third plenum of the 20th Chinese Communist Party (CCP) Central Committee could potentially include an announcement on an economic stimulus package, according to a Chatham House report. However, the report suggests that any such stimulus would likely be channeled into strategic sectors that are geopolitically important for the CCP, rather than policies favored by private enterprises and global investors.
In conclusion, the Coinbase report paints a complex picture of the global economic landscape, with potential headwinds for the US and China that could impact the cryptocurrency market. As always, investors should stay informed and exercise caution when navigating these uncertain times.
