According to numerous macroeconomic indicators, negative headwinds could improve during the remainder of the year and perhaps harm the crypto market.
From an investor point of view, the year has been a whipsaw. Despite equity markets defying expectations, a current report by ARK Invest explains reasons why the remainder of the year could experience numerous economic problems. Assets worth $13.9M are managed by ARK, and Cathie Woods, its chief executive officer, strongly supports cryptocurrencies.
In June 2021, ARK Investment partnered with 21Shares, a European asset manager, to apply for the first Bitcoin exchange-traded fund (ETF). The most current spot VTC ETF request was initially filed in May 2023 and is yet to be reviewed by the U.S. Securities and Exchange Commission (SEC).
Long-Term Optimism, Short-Term Bearish
In spite of ARK’s optimistic perspective concerning Bitcoin, which is backed by research regarding how the synthesis of artificial intelligence (AI) and Bitcoin could change corporate activities via a positive effect on costs and productivity, the company does not predict a straightforward path for a Bitcoin bull run owing to the present macroeconomic environment.
A recent publication by the firm lists gross domestic product (GDP) approximations, interest rates, inflation, and unemployment as some of the reasons for its less-than-optimistic cryptocurrency scenario. A significant point is that for the first time since 2009, the Federal Reserve is executing a limiting monetary policy, as shown by the natural rate of interest.
The ‘natural rate of interest’ refers to a hypothetical rate at which the economy does not diminish or expand. According to ARK, the indicator imparts pressure on borrowing and lending rates when it surpasses the real federal funds policy rate. Further, the firm expects further inflation slowdown, thus driving up the real federal fund’s policy rate and increasing the gap beyond the natural rate of interest. Basically, the indicator has resulted in the report holding a negative macroeconomic perspective.
Variation in Gross Domestic Income and Production
The difference between GDI (income) and GDP (production) was another point of focus. The report shows the need for close alignment of GDP and GDI because earned income must be equivalent to the value of produced goods and services. Nevertheless, the most current data depicts that real GDP is nearly 3% greater than the real GDI, depicting that downhill production data revisions must be anticipated.
The United States employment data was another crucial point, and the analysts state that for six successive months, the government has changed the figures downwards.
The chart depicts a labor market that seems weaker as compared to earlier reports. It is also evident that the last time six successive months of downward revision occurred was in 2007, just prior to the Great Financial Crisis’s onset.
‘Stagflation’ is Ordinarily Bearish for Risk-On Assets
‘Stagflation’ is another bearish development to watch out for. The report direct attention to overturning the yearlong pattern of price discounts determined by more consumer spending. Citing the John Redbook Index that incorporates more than 80% of the ‘official’ retail sales information collected by the United States Department of Commerce, it is evident that in August, overall same-store sales bounced back for the first time in 12 months. This indicates that inflation might be applying upward pressure.
The metrics show that current macroeconomic uncertainty might persist in the coming months. Nevertheless, they fail to offer a vivid answer concerning the cryptocurrency investors’ reaction in case the trend confirms higher inflation and reduced economic growth- a situation classically considered highly unfavorable for risk-on assets.
Ark Invest is optimistic that a solution to the macroeconomic growth would stimulate the delayed bitcoin bull as the industry gears to its halving. A notable development is the company’s interest in spot market for Bitcoin exchange traded fund (ETF). However, its bid still pends alongside other applications submitted before the Securities and Exchange Commission (SEC). Approval of the applications would entirely trigger the Bitcoin bull.
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