This week, the spotlight shines on the United States. While there is little news about cryptocurrency, crypto investors should pay attention to the traditional finance sector, as the Federal Reserve’s decision on interest rates and the most recent inflation data could cause significant price fluctuations.
The Big Three: Inflation, Interest Rates, and Jobless Claims
U.S. May CPI (Wednesday, June 12): The Consumer Price Index (CPI), the primary measure of inflation in the United States, will be released tomorrow, Wednesday, June 12. If the CPI reading is higher than expected, it could indicate ongoing inflation, leading the Federal Reserve to consider raising interest rates. This might create a risk-averse atmosphere, which could reduce investor interest in assets like cryptocurrencies.
Fed Interest Rate Decision (Thursday, June 13): This event is arguably the most important one this week. The Federal Reserve’s choice of interest rates will directly impact borrowing costs and Market liquidity. A higher-than-expected rate hike could cause a sell-off in riskier assets such as Bitcoin (BTC) and other digital assets. However, the crypto market could react positively if the Fed maintains its current position or hints at a slower, tightening pace.
On June 10, 2024, U.S. Senators Elizabeth Warren, Jacky Rosen, and John Hickenlooper sent a letter to the Federal Reserve urging Chair Jerome Powell to lower the federal funds interest rates from the current two-decade high of 5.5 percent.
According to the letter, the Fed’s decision to keep interest rates high is still widening the rate gap between Europe and the U.S., and lower interest rates could cause the dollar to rise, leading to tighter financial conditions. They asserted,
The Fed’s current interest rate policy is also having the opposite of its intended effect: it is driving up housing and auto insurance costs, which are currently the main drivers of the overall inflation rate.
While the U.S. is in the spotlight, Friday, June 14, will also see the announcement of the Bank of Japan’s rate decision. The Bank of Japan has been following a cautious monetary policy, keeping interest rates at ultra-low levels. Any change in this strategy could have far-reaching effects on global markets, including cryptocurrency.
U.S. Initial Jobless Claims (Thursday, June 13): The initial jobless claims data release provides insights into the health of the U.S. labor market. A significant increase in jobless claims indicates an economic slowdown, potentially leading to a more accommodating Fed policy and benefiting crypto markets.
What is the Crypto Market Outlook for this Week?
Although there are no significant events on the crypto calendar this week, observing the potential impact of these broader developments is essential. Despite possible fluctuations, the current market conditions offer a strategic opening.
Short-term option implied volatility (IV) has notably decreased, making call options (essentially bets on rising prices) an economical choice. If the released data surpasses expectations, over-the-counter funds could swiftly drive up IV, potentially resulting in significant profits for those who hold call options.
Meanwhile, the Ethereum ETF‘s volatility has decreased, and there are ongoing investments in the Bitcoin ETF. Recent reports indicate that Bitcoin exchange-traded funds (ETFs) absorbed two months’ worth of Bitcoin mining supply in the first week of June. The overall sentiment in the cryptocurrency market appears cautiously optimistic, though some experts emphasize the importance of anticipation.
According to Seth, a self-proclaimed macroeconomist with 51K followers on X, if the market is expecting rate cuts but ends up pausing or increasing rates, problems could arise.
On the other hand, if the market is already anticipating a pause, it is less likely to experience adverse outcomes.
