Cryptocurrency prices experienced a notable surge on August 15th, marking the fourth consecutive day of gains. This positive momentum in the market was attributed to a decrease in concerns about a potential US recession, following encouraging jobless claims data.
Bitcoin (BTC) and various altcoins saw significant increases, with some rising by more than 30% from their recent lows. The catalyst behind this recent rally was the release of the US jobless claims report on August 8th. The Bureau of Labor Statistics reported a decrease in jobless claims to 233,000, following a previous rise to 250,000. These numbers came on the heels of the non-farm payrolls report, which revealed a rise in the jobless rate to 4.3%.
Looking ahead, August 15th will be a key date for the crypto industry as the US is set to publish the latest Consumer Price Index (CPI) report. Economists are anticipating a drop in the headline CPI from 3.0% to 2.9% for July, with the core CPI (excluding food and energy prices) expected to decrease from 3.3% to 3.2%.
A potential decline in inflation could bode well for Bitcoin and altcoins, particularly in light of the Federal Reserve’s stance on interest rates. Following hints of rate cuts in the Fed’s July meeting, analysts are divided on whether the initial cut will be 0.25% or a more substantial 0.50%. Institutions like ING Bank and Citi are leaning towards a 0.50% cut, while others from Goldman Sachs and Societe Generale anticipate a 0.25% reduction. Additionally, a Polymarket poll suggests multiple rate cuts throughout the year.
History has shown that cryptocurrency prices tend to thrive during periods of rate cuts by the Federal Reserve. For instance, in March 2020, when the Fed reduced rates to zero amidst the pandemic, Bitcoin reached a record high of $69,000 in 2021. Similarly, in 2019, Bitcoin surged by 90% following rate cuts in July, September, and October. Conversely, in 2022, Bitcoin experienced a significant drop of 65.2% as the Fed raised rates, with altcoins suffering even more.
One of the reasons behind the positive correlation between rate cuts and cryptocurrency performance is the substantial amount of money in the bond market. With money market funds holding over $6.2 trillion and offering annual returns of over 5%, a decrease in interest rates is likely to prompt a shift towards riskier assets such as stocks and cryptocurrencies. This trend could potentially further boost the prices of Bitcoin and altcoins in the coming months.