The ripples of macroeconomic events extend far beyond traditional markets, encroaching on the nascent space of cryptocurrencies. A recently published report by Grayscale, the world-renowned digital asset manager, places the recovery of the crypto market squarely on the shoulders of the U.S. economy.
According to the report, the continuation of this rebound is intrinsically tied to the U.S.’s ability to achieve what economists call a “soft landing.”
The Role Of The Fed And The Crypto Recovery
Macroeconomic factors have emerged as significant risk contributors to the volatile world of cryptocurrency valuations. In this context, the premise of a ‘soft landing’ is linked to the Federal Reserve’s ability to reach its 2% inflation goal without a stark rise in unemployment.
Critics, however, maintain a skeptical stance on the achievability of this equilibrium. “Any stumble in the economy or further rate hikes by the Federal Reserve could put a hold on the ongoing crypto recovery,” warned Zach Pandl, Grayscale’s Research Director, in his analysis.
While Bitcoin demonstrated a relatively flat performance in July, Pandl posits that major tokens could experience a surge, aligning with other risky assets, should the economic data continues to validate the soft landing theory.
Grayscale’s report further illustrates a potential appreciation of Bitcoin, specifically if the Federal Reserve tolerates a long period of above-target inflation.
Bitcoin’s unique positioning as an alternative non-sovereign money system and a hedge against inflation could significantly benefit from such a scenario. However, Pandl stressed that achieving a soft landing is far from guaranteed and, as a consensus view, it is already somewhat factored into market prices.
Bitcoin’s Latest Price Action
In the past day, Bitcoin has made a notable move following its stagnancy over the past week. The largest crypto by market capitalization, though briefly, has tapped above the $30,000 mark earlier today; however, at the time of writing, BTC has seen quite a retrace and currently trades just above $29,000.
Bitcoin’s trading volume has also almost doubled in the past week from a low of roughly $11 billion last Wednesday to above $17 million at the time of writing. This surge in volume particularly suggests a possible increase in BTC trading activity.
Meanwhile, despite the uncertain economic landscape, Microstrategy appears to be strategically positioning itself for potential opportunities. The software company has recently announced plans to raise as much as $750 million through share sales, to reinvest some of the proceeds into more Bitcoin.
Notably, the crypto market’s trajectory appears inextricably tied to the broader macroeconomic picture painted by the U.S. economy’s performance, as pointed out by Grayscale. The anticipated ‘soft landing’ remains the linchpin in the firm’s analysis for crypto recovery, but as with all economic predictions, only time will tell.
Featured image from iStock, Chart from TradingView