The crypto markets currently appear to be experiencing a turbulent phase: Last week, the Bitcoin price fell below the $80,000 mark, marking a massive loss of value since its all-time high of around $109,000 in January. This decline in value is occurring against a backdrop of growing economic uncertainty and concerns about the future monetary policy of the U.S. Federal Reserve.
Inflation, interest rate policy, and the trade war as burdens?
A key factor in the current uncertainty is likely the debate surrounding the Federal Reserve’s interest rate policy. Although US inflation fell to 2.8 percent in February, a positive signal for possible interest rate cuts, analysts warn of new risks. In particular, the trade strategy of the now-re-elected US President Donald Trump could lead not only to higher prices but also to economic disruption.
Larry Fink, CEO of the world’s largest asset manager BlackRock, sees Trump’s trade policy plans as a threat to price stability, as reported by Reuters: “I think if we all become a little more nationalistic—and I’m not saying that’s a bad thing —that will lead to increased inflation,” he told attendees at the CeraWeek conference, according to the news agency. This could dash hopes for rapid interest rate cuts by the Fed.
Market likely remains nervous
Although the latest inflation rate was slightly below expectations, the crypto market reacted only cautiously positively. According to Youwei Yang, chief economist at BIT Mining, a single low consumer price index (CPI) is not enough to restore battered investor confidence. “The lower-than-expected CPI should be optimistic and point to faster interest rate cuts, but cryptocurrencies have not responded strongly,” Forbes quoted him as saying.
“What we are currently witnessing is a full-blown reaction to the political chaos and global tensions resulting from Trump’s tariffs. While Larry Fink talks about consumer price index models and nationalism, crypto investors are selling because the macro environment feels like a roller coaster ride that won’t end anytime soon,” Mike Cahill of Web3 developer Douro Labs explained the situation to “The Street.”
At the same time, leading investment banks such as Goldman Sachs and Yardeni Research have raised their recession forecasts. Experts believe that Trump’s economic policy decisions, in particular, could increase the risk of an economic downturn. According to Goldman Sachs, the probability of a US recession within the next twelve months has risen from 15 percent to 20 percent, as Forbes further reports.
Uncertainty Shapes Crypto Markets
While stock markets appear to be recovering from their recent losses, the crypto market remains fragile for the time being. Investors are likely waiting for clearer signals from the Fed or the US government, especially after an underwhelming crypto summit at the White House just over a week ago. “This market decline is largely due to broader economic concerns, including fears of a US recession and persistent inflation,” explains Sean Dawson, head of research at Derive.xyz, according to Forbes.
The coming weeks could be crucial for the performance of Bitcoin and other cryptocurrencies. However, as long as the economic situation does not stabilize, uncertainty could remain a dominant factor for the crypto markets.
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