Recession or Top-Down Correction? Macro Data Analysis of the Crypto MarketWhile recession-mongering experts are abound, there are currently no clear signs of an economic recession. Instead, we see trends of increased government spending, currency depreciation, and global liquidity, which will continue until 2025, creating a favorable environment for risk assets, including cryptocurrencies
Recession or Top-Down Correction? Macro Data Analysis of the Crypto Market
While recession-mongering experts are abound, there are currently no clear signs of an economic recession. Instead, we see trends of increased government spending, currency depreciation, and global liquidity, which will continue until 2025, creating a favorable environment for risk assets, including cryptocurrencies. This article will delve into macro and on-chain data to explore the driving forces behind market movements and provide insights into future trends.
Macro Data Analysis
1. Global Liquidity
Global liquidity is rising and is expected to continue through the first half of 2025. Central banks around the world are shifting towards dovish policies, meaning liquidity will continue to increase. The Federal Reserve is expected to cut interest rates in September, further boosting global liquidity easing.
2. Business Cycle
The ISM index has bottomed out, typically associated with economic recessions, yet no signs of a recession are evident. The unemployment rate has risen to 4.3%, and inflation has declined to 1.47%, indicating a gradual economic recovery.
3. Credit Markets
Despite tightening lending standards, credit spreads are near historical lows, lacking any recessionary signals.
4. US Dollar Index
The US Dollar Index has been steadily declining since reaching a high of 112 in October 2022 and is projected to fall to 90-95 in 2025. Further depreciation of the dollar will benefit hard assets like Bitcoin and gold.
5. Fiscal Policy
The US government continues to increase fiscal spending, with the annual budget deficit expected to rise from $1.6 trillion in June to $1.8 trillion. This massive fiscal stimulus will support economic growth and curb recession risks.
6. Fed Forward Guidance
Federal Reserve Chairman Jerome Powell stated at the Jackson Hole conference that inflation is under control and the Fed will focus on maintaining a strong labor market. The Fed is projected to cut interest rates in September and potentially nine more times by the end of 2025, with the final rate reaching 3%.
7. Summary
While some uncertainties remain in the economic outlook, overall, macro data suggests a low risk of recession, and increased global liquidity will create a favorable environment for risk assets.
On-Chain Data Analysis
1. Long-Term Holders
Bitcoin long-term holders profited at the end of Q1 and Q2 but have returned to the market in recent weeks. This suggests that smart investors still believe in the long-term value of Bitcoin.
2. MVRV Ratio
Bitcoin's MVRV ratio currently stands at 1.6, indicating a neutral level.
3. Realized Price
Bitcoin's realized price currently sits at $31,000, similar to its range in 2019, suggesting increased volatility in the future.
4. Bitcoin Miners
Bitcoin miners have net-accumulated BTC for the first time in a year, potentially signaling a new bull cycle for the market.
5. Funding Rates
Funding rates indicate a shift in market sentiment towards bearishness, creating conditions for a market correction and laying the groundwork for future upside.
6. Stablecoin Balances
Stablecoin balances have just returned to the highs seen in late 2021, indicating low market liquidity. Stablecoin balances are expected to rise further as interest rates decline and global liquidity increases.
7. Forced Sellers
The selling activities of institutions such as the German government, JumpCrypto, and Mt.Gox have put some pressure on the market, but these are considered noise in the long run and will not affect the market's fundamentals.
Conclusion
Despite some short-term noise, long-term macro and on-chain data point towards a new bull cycle for the crypto market. History might repeat itself, and a new frenzy may emerge later this year, continuing into 2025.
Risk Factors
- Recession: Though currently not evident, recession risks still exist, particularly in the commercial real estate sector.
- Political Factors: The US election may have short-term impacts on the market.
- Geopolitical Conflicts: Conflicts in Europe and the Middle East could disrupt the market.
- Traditional Market Volatility: Significant adjustments in traditional markets could put pressure on the crypto market.
Outlook
Despite these risk factors, we believe that increased global liquidity and the Fed's monetary easing policies will ultimately boost the market. We will continue to monitor data and provide timely updates on market trend analysis to guide investor decision-making.
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