Cryptocurrency investors are getting greedy as animal spirits returned to the market this week. The crypto fear and greed index jumped to the greed zone of 61 on Thursday morning, its highest level since April 26th.
Animal spirits are back
There are signs that investors and traders are having animal spirits again. Meme stocks like AMC Entertainment and GameStop surged hard on Monday and Tuesday, reaching their highest levels in months.
Further, American stocks have surged to their all-time highs. The Dow Jones index surged to $39,970 while the S&P 500 and Nasdaq 100 indices soared to $5,310 and $16,740, respectively.
Meanwhile, the closely-watched VIX index tumbled to $12.4, its lowest swing since December last year, erasing all gains made on Monday. The index, which is a great measure of volatility in the market, has crashed by over 40% from its highest level this year.
The US dollar index (DXY) is also in a strong sell-off. It has dropped for four straight days and is now hovering at its lowest level since April 10th.
This performance accelerated after the US published weak economic numbers, raising the possibility that the Federal Reserve will start cutting interest rates soon.
A report by the Bureau of Labor Statistics (BLS) said that the headline and core Consumer Price Index (CPI) dropped to 0.3% in April, the first decline in six months. Another report showed that retail sales and manufacturing activity dropped in April.
Recently, data from the US showed that consumer confidence tumbled to its lowest level in two years while the economy grew by just 1.6% in Q1. It had expanded by 3.4% in Q4, meaning that the economy is slowing.
Implication for cryptocurrencies
Weak US economic numbers are good for cryptocurrencies and stocks because they raise the possibility that the Federal Reserve will start cutting interest rates.
The bank left rates unchanged between 5.25% and 5.50% in its meeting last week and hinted that it will be data-dependent. Therefore, if inflation continues falling, it means that the first rate cut will come in the third quarter of the year. The swap market data shows that market participants anticipate two or three cuts this year.
Cryptocurrency prices thrive when there is hope for rate cuts. For example, Bitcoin surged to a record high of $73,300 earlier this year as the market was anticipating three or four cuts this year. It then came under pressure as the US moved to reflation.
Most cryptocurrencies rose after the weak US economic data. Bitcoin jumped to almost $66,000 while tokens like Floki, Pepe, Book of Meme, and Arweave soared by double-digits.
The other potential catalyst for cryptocurrencies is a sign that investors are having animal spirits as we saw with the performance of popular meme stocks. Most cryptocurrencies, especially meme coins surged in the last meme stock frenzy in 2021.
