Friday’s Coinbase Weekly Market Report cited macroeconomic data indicating that the U.S. economy is starting to slow down. The report cited numerous data points on manufacturing, unemployment, and domestic demand to support this claim.
Some indicators include the U.S. unemployment rate rising to 4.1% in June and the Treasury yield curve inverting since mid-2022, a historically strong recession indicator.
“We think the economy is very likely to have peaked in Q2 2024, which is one of the reasons why we think the Fed will start cutting rates on September 18th, and this month is too early, and there is no August meeting,” Coinbase analysts David Duong and David Han said.
Despite optimism about rate cuts, recession indicators remain.
Coinbase analysts added that while a rate cut could boost the market, it may not be strong enough if there are concerns about a more pronounced recession.
“That is, if the U.S. economy falls into a recession, retail investors are likely to be reluctant to enter new stock or cryptocurrency positions,” the analysts added.
However, the Coinbase report points to the November U.S. presidential election, which could further boost fiscal expansion for whoever wins. “We believe this is a strong incentive to buy bitcoin as an alternative to the traditional financial system,” Duong and Han said.
They added that Ether could see a surprising uptrend as spot funds flow into Ethereum exchange-traded funds (ETFs).
“But overall, we think there is likely to be more volatility over the next two months before conditions begin to improve significantly in late September,” the analysts said.
Economic stimulus likely to come from China
According to China’s National Bureau of Statistics, the consumer price index (CPI) rose 0.2% in June, lower than the inflation rate in the previous three months and lower than the 0.4% increase economists had forecast.
The lower CPI indicates weak domestic demand, and consumer confidence has declined amid the country’s long-term housing slump and concerns about jobs and wages. Recent import data also shows a weak domestic market, falling 2.3% last month to its lowest level in four months, below forecasts.
This slowdown in internal market conditions could spark discussions among Chinese monetary policymakers about the need for economic stimulus to stimulate the national economy. From Monday to Thursday, a large-scale meeting of top Chinese Communist Party officials is scheduled to take place, known as the Third Plenary Session of the 20th Central Committee of the Communist Party of China (CCP).
The plenary session is likely to include an announcement on economic stimulus measures, according to a Chatham House report.
“Many international experts are looking forward to this upcoming plenary session and are hoping for sound stimulus measures to revive China’s stagnant economy in the post-COVID-19 era,” said Dr. Yu Ji, a senior fellow at Chatham House’s China Asia Pacific Programme.
But Jie added that any stimulus would be focused primarily on sectors that are geopolitically important to the Chinese Communist Party, making it “unlikely to be a policy that private companies and global investors are eagerly awaiting and favoring”.
Disclaimer: The Block is an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures is the largest investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information on the cryptocurrency industry. Below are the current financial disclosures.
© 2023 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be legal, tax, investment, financial or other advice.