It Is The Economy, Folks

Which event will trigger the next crypto rally? Regulations or macroeconomic developments? I think macroeconomic developments have more impact on the crypto market. The bear market started because of the Fed's rate hikes. When the FED begins to cut interest rates, it will ignite the bull market. Even the finalization of interest rate hikes could have a similar effect. Favorable legal regulations may have a catalytic impact on the rise.

On the macroeconomic front, there are two events that we want to happen. The economy is vibrant, and interest rates are low. Liquidity conditions are the most crucial factor affecting prices, especially in the altcoin market. Low-interest rates support liquidity. The liveliness of the economy, on the other hand, has a positive effect on incomes. Thus, people can invest more in crypto.

First of all, we want interest rates to be low. Thus, the flying wheels of crypto networks can be activated because of the value created by crypt thanks to developing technology and innovations. And the value of crypto networks is rising exponentially.

The $100 trillion question everyone is trying to answer: When might macroeconomic conditions occur that will trigger a bull market? We must closely follow the economic data to give a realistic answer to this question.

Last month, the headline consumer inflation in the USA was announced as 3%. Core consumer inflation, to which the FED attaches more importance, was 4.8%. At the press conference, Fed Chairman Jerome Powell stated that 3% headline inflation was encouraging. On the other hand, he said that it would not be right to act on a single data and that they would carefully follow the inflation rates to be announced in the following months.

On Thursday, August 10, consumer inflation for July will be announced in the USA. The market expectation is that the inflation in July will be 3.3%. I expect that the inflation in July will be below 3%. I base this estimate on data published by Truflation, which measures inflation daily. Throughout July, inflation hovered around 2.4%. Although official data are higher, the plausible scenario would be inflation below 3%.

There is a remarkable correlation between the inflations of the countries. When writing this article, Germany's July inflation was announced. Inflation, which was 6.4% in June, dropped to 6.2% in July. There is no specific reason for the increase in the USA.

The next meeting of the Fed will take place on September 20. The probability of an interest rate increase decision at the meeting in question decreased to 12%. After the FED meeting in July, this rate was 18%. Optimism prevails in the stock market. The Nasdaq has risen 23% in the last six months. S&P has similarly been rising since March. This rise, which took place when liquidity conditions were not very favorable, reflects the market's optimism.

What about crypto? There is a weak price trajectory in the crypto market. Many investors are waiting on the sidelines and want to time the market. On the other hand, the rise in stocks has slowed down recently. Will the FED soften its hawkish stance, or will stock prices retreat?

Is it a good time to open additional positions in the crypto market? Bitcoin halving will take place in April 2024. Bitcoin started to rise six months before the previous halvings. A few months later, other coins followed suit. August and September are not crypto's favorite months. Therefore, the timing may be the days following the FED's September 20 meeting. By this date, crypto prices may decline.

TL;DR

Macroeconomic data shows that we have come to the end of the rate hike process. Worldwide, inflation is falling, and economic activity is slowing. Export and import data from China announced yesterday showed that the slowdown in the Chinese economy continued. Today, China's July inflation will be announced, and inflation is expected to turn negative. Falling inflation and slowing economies will encourage central banks to improve liquidity conditions.

The main scenario in crypto is the beginning of the bullish movement in the last quarter of the year. On the other hand, big market players like to surprise. For example, the overwhelming majority of experts expected a rise this year. So far, gold has remained flat. Therefore, the bull rally may start in August-September or continue until the second quarter of 2025.

Looking at the big picture, we see less than a year left before the bull market starts in crypto. Investors who persevere will soon receive their reward.

Thank you for reading.

Cover Image Source: Midjourney App