6 months ago
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Aurelie Barthere weighs in on the uncertainty of the direction where the US economy is headed and the possibility of fewer rate cuts by the Fed.
The US Labor Department revealed that core inflation hit 3.2% in February, above the 3.1% expectations. Although this could be seen as an issue for crypto investors, Aurelie Barthere, Principal Research Analyst at on-chain analysis firm Nansen, reveals that they do not expect it to end the crypto bull market yet, nor to impact prices significantly in the coming weeks.
“There is too much bullish momentum in crypto (price and newsflow, see latest announcements on BlackRock allocated its own BTC ETF to two of its asset management funds),” Barthere explains.
The next likely scenario is a repricing of expected Fed rate cuts. At the moment, futures markets have four rate cuts priced by December 2024, Nansen’s Principal Research Analyst highlights and this should be shaved to two to three rate cuts.
“The FOMC [Federal Open Market Committee] meeting projections will be updated this month and we expect a median of 2-3 rate cuts in FY 2024. We do not expect a significant sell-off for crypto as this repricing has happened in the past few months without questioning the bull market (consolidation vs significant sell-off). Interestingly, gold is ‘only’ down 1%, and US 2yr yields up 5bps since the CPI’s disclosure.”
As for where the US economy is going, Barthere explains that the slight upside on the core CPI combined with last week’s slightly weaker US employment report are sending “hot and cold” signals to the Fed.
“This highlights the high uncertainty around the US economic path, with the soft landing being the main scenario so far (bullish crypto). There are two tail scenarios (bearish crypto), 1) inflation reaccelerates and 2) real growth slows significantly. For now the data we had does not point clearly to any of these tail scenarios. What has to be noted though is that asset prices, whether equity, crypto, credit are not pricing any probability of these tails occurring.”
Asset prices will only move significantly after the market gets a clearer message from the data on either of the two scenarios mentioned by Barthere.
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