Crypto Volatility: Economic Factors that Could Amplify Downturns

Volatility has once again struck our dear crypto market. Bitcoin and Ethereum have suffered significant losses following the Bank of Japan’s announcement of a 0.25% increase in its key interest rates. But let’s not solely blame our Japanese friends; other economic factors are also at play. Let’s explore the key events that could shake up the crypto market this week.

The economic events that will fan the flames

Bitcoin has dropped drastically, but the week promises to be tumultuous for the crypto market. Several key economic events could disrupt the peace of investors.

S&P Final US Services PMI: A positive signal for traditional markets

On Monday, all eyes will turn to the S&P Global Services PMI, which covers sectors such as finance, insurance, real estate, and business services.

In July, this PMI exceeded expectations, rising to 56 points from 55.3 in June, indicating growth in the services sector. This growth suggests increased demand for services, a good omen for traditional markets that could also positively influence the crypto market.

As they say, a good wind is blowing on the markets, let’s take advantage of it before the breeze turns!

The US trade deficit: An indirect influence on crypto

On Tuesday, the US trade deficit will reveal its secrets. In June, this deficit showed an increase in exports of services and cars, indicating an economy more oriented towards services.

Ram Ahluwalia, CEO of Lumida Wealth, asserts that this transition could create new investment opportunities and improve economic conditions.

A thriving economy could encourage investors to take risks, which could potentially benefit cryptocurrencies. After all, when the cat is fat, the mice dance!

Consumer credit: An indicator of economic confidence

On Wednesday, the consumer credit data for June will be in the spotlight. In May, this credit increased at an annual rate of 2.7%, with a 6.3% rise in revolving credit.

This shows increased consumer confidence and a willingness to go into debt, generally a good sign for the economy.

If June data reveals similar trends, it could boost economic activity and corporate profits, hence strengthening stock markets.

However, high levels of credit carry risks of defaults and financial instability, which could increase volatility in traditional financial markets and, by extension, benefit the crypto market.

Tom Barkin’s speech: Monetary policy outlook

On Thursday, Tom Barkin, president of the Richmond Fed, will share his vision of the monetary policy outlook, a speech that could influence traditional markets and the crypto industry.

The Federal Reserve has maintained its interest rates at 5.25% – 5.50% for the eighth consecutive meeting. Jerome Powell, chairman of the Fed, expressed cautious optimism about the progress of disinflation for the second half of 2024, without announcing an imminent rate cut.

However, figures like Elon Musk criticize the Fed’s reluctance to lower rates, especially after a disappointing jobs report. It seems that great minds don’t always agree on the course of action.

Macroeconomic effects: The massive crypto sell-off

The crypto market is facing great volatility, with a 12% drop in total capitalization. Bitcoin has fallen by 15%, reaching $51,400, while Ethereum has lost 21%.

Some analysts attribute this crash to the Japanese stock market experiencing its worst losses since 1987.

Zach Jones, market analyst, links this drop to Japan defending its currency, the Yen, by selling its US Treasury holdings.

According to Jones, Japan had to choose between letting its currency collapse or printing money to defend it, ultimately opting for the latter. It shows that even major economies sometimes have to choose between a rock and a hard place.

Despite the drops, investors, including whales, remain hopeful and are closely watching the comeback of their favorite cryptos. The coming days will be decisive for the future of the crypto market.